Single-premium immediate annuities can provide you with a fixed monthly check that can last your lifetime or a specified period. The amount of your payout depends on how much money you invest, your age, and how long the cash flow will last. Over the past decade, immediate annuities did not get much attention. But now there has been a renewed interest in annuities among many investors as they evaluate their retirement income needs.
Americans Are Living Longer
The 20th century’s retirees are living longer than any previous generation. And the next generation will live longer yet. This could mean that many recently retired couples may expect to need an income for 30 to 40 years. These couples are looking for lifetime, guaranteed incomes.
Pension Plans on The Decline
Traditional pension plans use the single-premium immediate annuity concept to give you a steady income that you can’t outlive. But many companies are dropping their pension plans and only offering their workers 401(k) or other employee-managed alternatives.
To replace the pension plan’s predictable and reliable income, employees of these companies are using part of their retirement dollars to buy immediate annuities.
Nest Egg Diversification
An immediate annuity could fit into the most conservative portion of your retirement portfolio. It would complement bonds and in most cases is a better alternative than cash. And once that guaranteed income stream is established (subject to the claims paying ability of the insurance company), you could invest your remaining liquid assets in stocksfor a well-balanced retirement portfolio.
Inflation Is The Enemy
An immediate annuity’s payments are fixed. So if we were to have double-digit price increases like those of the 1970s, the purchasing power of your annuity income would decline. To plan for such a scenario, you could invest a portion of each month’s annuity payment into stocks to potentially cushion your portfolio against future inflation.
Will Your Heirs Get Anything?
When many investors think of an annuity they get the impression that once they die the payments must cease. If this is a concern of yours, you could buy an annuity that will provide payments for your lifetime plus a certain number of years to a named beneficiary.
Or you could have the payments guaranteed for your and your spouse’s lifetimes.
Will The Company Last as Long as You?
There is always the slight chance that the annuity company might have financial problems. Therefore, you should only consider top-rated companies that have a solid track record in managing annuity assets.
Immediate annuities are not the cure-all for everyone’s retirement income needs. But they can enhance the overall performance of many portfolios. And if your health is a problem, health adjusted immediate annuities can provide even more income.
For a free personal illustration of immediate annuities, return the enclosed coupon.