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Flexible Annuities Leave Money to Heirs, Among Other Benefits


There are ways to receive lifetime income from your annuity product without annuitizing it.  In Financial Advisor Magazine, David Shucavage discusses “Annuities As A Retirement Option.”  Your retirement savings can be used to supplement Social Security and any pension income you might receive upon retirement.  Annuity products were introduced to provide you with income that is reliable and guaranteed, income that will supplement that money coming from your other sources.  They have actually been around since the Roman times.  Two famous historic people who had annuities were Beethoven and Benjamin Franklin.  Beethoven’s was provided to him by his patrons so that he could make music without worrying about income, while Benjamin Franklin left an annuity to his beloved city of Boston that paid them money for more than 200 years.

When you annuitize your money, you make a payment to an insurance company that pays you monthly for the rest of your life.  With traditional annuities, any remaining balance in your annuity stays with the insurance company when you die.  This is not a bad deal because your annuity provided you with insurance against outliving your savings.  But some people have opposition to the insurers keeping the remaining balance from an annuity purchased with their hard earned 401k or IRA savings.  Many of these people chose to take that money and invest it in stocks and bonds, which led to many Americans running out of retirement savings while they were still living.  Although traditional annuities work to guarantee lifetime income, insurance companies have innovated new annuity products that meet the needs of those people who worry about any remaining annuity balance being left to their heirs.

New hybrid annuities don’t require you to annuitize your product.  They guarantee you lifetime income through an income rider, then leave any remaining annuity balance to your heirs.  Each payment you receive is deducted from your account balance.  If you deplete your account balance while you are still living, your insurance company will continue to pay your guaranteed monthly income.  If you die with a remaining account balance, your heirs will receive that money.  The flexibility of these newer annuities makes them popular for many reasons.  You can choose when you want to start receiving payments and receive 6% increases each year that you delay.  If you don’t need the income payments, you can stop payments and delay until a later date while still growing your account.  This flexibility is not free, but is worth the cost for some investors who don’t like the idea of a traditional annuitization.

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