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Immediate Annuities Are Simple & Protect Your Future


Articles that ask the expert for their opinion on financial and investment issues can offer a lot of information for other readers as well.  Money’s Walter Updegrave lets the reader know “Why an immediate annuity might be right for you.”  A 63-year old woman told her 65-year-old husband that they should look into buying an annuity with some of their $600,000 savings.  He disagreed, but asked an expert for their opinion on the issue of annuity products.  Whether or not they decide to purchase an annuity to finance some of their retirement, the expert says that at the very least they should look into the details involved and investigate the pros and cons for their situation.

Basic immediate annuities offer a lifetime guarantee of a steady income stream to pay your expenses in retirement.  This particular author believes that the best bet for this couple would be a simple immediate annuity using some of their savings.  Most of the naysayers when it comes to annuities argue that people should not tie up all of their money.  But most people who like annuities and recommend them do not tell investors to use all of their savings for buying an annuity product.  It is best to use some of their savings for an annuity and have the rest of their money available to access in the case of an emergency situation.

Your monthly annuity payments are based on a lot of factors, especially your current age and the current interest rates.  A joint-and-survivor annuity is good for a couple who would like the annuity payments to last as long as both of their lives.  A good estimate if this couple were to purchase an immediate annuity using $100,000 of their savings would be a monthly payment of $455 until they are both no longer around.  The husband in this article believes that they can get payouts on their own without using an annuity.  While that is true, the author points out that there is no guarantee of lifetime payouts using other investing methods.  Also, the only way to guarantee as high of monthly payments would be by taking on a significant amount of investment risk.

That is because annuities use something called mortality credits, where money is shifted from investors who die early to those who live a long life.  You could definitely be one of the investors whose money is used to finance the payments of others, but you could easily be the investor who benefits from the use of mortality credits.  That is a concept unique to annuities and important in offering these lifetime guarantees.  While some think you could be wasting your money, it really is just another form of insurance.  This type of insurance guarantees that you won’t run out of monthly payouts for the rest of your life.  I think this is just as important as insuring your health, your car, and your home, maybe even more so.

An annuity is best purchased from a company with high financial strength ratings from companies like Fitch and A.M. Best.  You should not use all of your savings to purchase your annuity, as stated earlier.  State guaranty associations work like FDIC insurance to make sure you continue receiving your payments if something happens to the life insurance company who issued your annuity.  It is wise to purchase an annuity for an amount that does not exceed your state’s guarantee.  Since annuity rates are low right now, it could be a good option to purchase laddered annuities with the hopes of getting a higher interest rate with your next annuity purchase.  Each individual situation is different, so speak with an expert to see what is best for you.

Written by Rachel Summit

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