If you’re retired, you want an income that can support your lifestyle—income that you can’t outlive. How do you get that? A life income annuity might be the answer.
A life income annuity, sometimes called a single premium immediate annuity, is the type of product that corporations use for pensions. If you work for a company and you’ve accumulated money in your pension plan, when you retire you get an income for the rest of your life. The product that underlies that pension and monthly income is a life income annuity. Not only can you buy this same product on your own, but you may get a better deal than you’d get with a corporate pension. When companies shop for these annuities, they don’t look for the highest income for their employee, but the lowest cost to them. By for shopping it yourself you can probably get a better income than you would through your company. Of course, you want to be sure that the company offering your annuity will be around as long as you are, so be sure to investigate it thoroughly.
What exactly is a life income annuity? First let’s talk about what it’s not. It’s not a deferred annuity. It’s not an accumulation annuity, or a fixed annuity, or a variable annuity, or one of those indexed annuities. It’s an income annuity. You put a lump sum of money into the annuity and it pays you back an income for the rest of your life. You can make sure to adjust for inflation, choose a flat income for the rest of your life, or structure it lots of different ways. Once you decide upon an income, the annuity guarantees you that income for the rest of your life, no matter how long you live.
There is a disadvantage. Once you put money into the life income annuity you can’t get it back out. You have exchanged a lump sum payment for an income. If you need money for an emergency, you don’t have access to it anymore. We recommend to our clients that they don’t put more than 25 per cent of their investible dollars into these products. For some people, this can be a deal-breaker.
There’s also an advantage. You can get a pretty decent income. The amount is determined by your age and by interest rates. You can find annuities that promise a better than average return on your investment, guaranteed for the rest of your life.
If you decide that an annuity is right for you, be sure to thoroughly investigate the company selling the annuity. You want to make sure it will be around as long as you are.
To recap: Life income annuities pay out regularly for as long as you live. They pay out regardless of the market. And as long as you’re comfortable with the fact that you can’t access the money invested in a life income annuities, they can be a great deal and provide the income you need for the rest of your life.
About The Author: The host of the popular radio show, “Money Matters with Ken Moraif,” Ken specialises in retirement planning and offers free seminars that help attendees learn to plan their retirements and secure their investments. A certified financial planner, Ken also heads the financial & retirement planning firm Money Matters with Ken Moraif.
All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Information presented does not involve the rendering of personalised investment advice. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client’s investment portfolio.
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