For most retirees, the biggest fear later in life is running out of money. One of the only solutions to this issue is purchasing a life-long stream of income, or annuity product. With an immediate annuity, you pay a lump-sum up front and then begin receiving a regular income stream right away. While these products have traditionally been fairly inflexible, newer options are meeting the needs of more investors.
Immediate annuities traditionally paid out fixed amounts with no adjustment for inflation. They also typically offered zero access to your money, which left a bad taste in many retirees mouths. Fortunately, today’s immediate annuities can offer variable payouts, meaning your income can grow if the funds are invested. Some even offer liquidity options, like the ability to withdraw 20% of your assets each year, even after annuitizing, the ability to take out some or even all of your money in the first five years after annuitizing, and finally having access to a sum of money in case of an emergency, such as a medical crisis.
Payments can vary from annuity to annuity, so it is always recommended that you shop around before signing on the dotted line. Another point to consider is your desire to leave a legacy. While purchasing a single-life immediate annuity can give you a substantial income stream, it may not provide for anyone else. If this concerns you, you might want to consider these other options:
- Joint-and-survivor annuities. These cover two people, usually a married couple, so payouts continue as long as either is alive. Some have a level payout while others drop the payout, sometimes by 50% after the first death.
- Guaranteed annuities. These annuities pay for a minimum period, no matter how long you live. Let’s say you buy an immediate annuity and specify a five-year period certain. If you live for 30 years, you’ll get 30 years of annuity payments. But if you die after two years, your beneficiary will receive payments for the remaining three years of the contract.
In either case though, the monthly payment will be lower than if you purchased a single-life annuity.
For more information on all things annuities, visit our website at www.annuityfyi.com and please contact us with any questions or comments.
Written by Rachel Summit