In a recent Investors Business Daily article, Margaret Price asks “Is The Time Right For Income Annuities?” The time is usually right for income annuities because there not many ways to guarantee a lifetime income stream. The article offers the example of a retired insurance company worker who bought an income annuity at retirement many years ago. He knew the guarantees that he would receive and how important it was to ensure that his income would last as long he lives. He has been using his income annuity payments to pay the basic living expenses for him and his wife since retiring. After retiring, the man in the article became a retirement funding researcher and he advises retirees to make the same move as him. Use your predictable income from pensions or Social Security to meet your basic expenses in retirement. If that income will not pay the expenses, as it often doesn’t, an income annuity is the best way to fill that income gap. A single premium immediate annuity is usually bought from your savings and provides you with a guaranteed lifetime income stream. Once you have met your basic expenses with a SPIA, you can invest the rest of your savings.
Americans are living longer in their retirement and many of them do not have guaranteed income from a workplace pension. It’s become evident that Social Security will no longer finance your retirement comfortably, so everyone is looking for ways to guarantee a stream of income. Many experts say that single premium immediate annuities are simple and low cost when compared to other types of products. Increasing interest in income annuities has been proven through large sales increases. LIMRA found that sales of single premium immediate annuities and deferred income annuities increased by 40% between 2009 and 2013. They estimate that the current sales of $10.5 billion will double to $22 billion by 2018. The expected growth of SPIA and DIA sales will likely be due to a rapid increase in the number of retirees, especially those without a pension plan.
One investment advisor cautions that income annuities do have their disadvantages so they are not right for everyone. Single premium immediate annuities are long term products because you cannot simply cash them in and get your money back. Immediate annuity payouts also depend on current interest rates, which are low right now. For this reason, it is sometimes a good idea to buy your SPIAs over time and take advantage of a potential increase in interest rates in the future. You also receive a payout based on your age, so it’s beneficial to wait to purchase a single premium immediate annuity until you are in your 70’s to take advantage of higher payouts. If you want to purchase an income annuity at a younger age, deferred income annuities can be deferred until a date later in the future. It’s a good time for income annuities right now because Americans are searching for a way to guarantee themselves and their spouses a lifetime stream of income. An expert at Annuity FYI can answer any questions you have regarding income annuity products.
Written by Rachel Summit