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Converting A 401k Annuity


Women around the age of 73 are most likely to purchase an immediate annuity, according to “Who’s Buying Immediate Annuities and How to Get Their Business” by Danielle Andrus of Advisor One. LIMRA recently issued a report detailing the typical immediate annuity consumer and the direction they believe the immediate annuity marketplace will take over the coming years.  Women buy 60% of immediate annuities and are around age 73 when they make their purchases.  Women and men may choose to convert their 401k annuity using the pre-tax money from their working life 401k savings.  Those who use pre-tax money to buy immediate annuities usually do such at the same time they start receiving Social Security benefits and IRS required minimum distributions from other investments.

Typically, immediate annuity purchasers choose to receive lifetime payments that are guaranteed, but do not opt for increases based on inflation or other factors.  The average purchase of an immediate annuity is $107,000.  Many buyers opt for some type of liquidity option that will allow them to receive a cash value for their annuity if they wish or a combination cash withdrawal and continued payouts.  LIMRA thinks that this annuity market will increase from $7.5 billion last year to $7.7 billion this year and up to $11 billion in 2013.  Advisors should take note that most immediate annuity contracts have guaranteed income benefits and payouts and the best age to cater to investors would be before age 62 when they start purchasing these investments in larger numbers.

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