For more than half of aging Americans, there is at least one thing scarier than death. A recent Allianz study found that 60 percent of baby boomers are more fearful of running out of money in retirement than dying. For these Americans, adding a guaranteed source of income during retirement by purchasing an annuity is one easy way to gain peace of mind. However, there are many different types of annuities, and their structure is often relatively complex. Here are seven things every retirement planner needs to know before investing in a lifetime annuity.
- There Are Different Types Of Annuities
Not all annuities are equal, so investors who want guaranteed income for life starting today should make sure to choose an immediate lifetime annuity. Immediate annuities allow investors to make a lump sum payment up front in exchange for immediate and regular (typically monthly) income until death or until a specified date in the future. Other types of annuities, including variable annuities and fixed-index annuities, add a variable rate of return into the equation for investors looking to boost returns based on stock market performance. However, the typical immediate annuity has a fixed rate and payment schedule.
- It’s Easy To Estimate Monthly Payments
For investors curious about how much monthly income they could generate from an immediate annuity, there are plenty of online calculators out there that will provide estimates in just a few seconds. For example, the calculator provided by ImmediateAnnuities.com estimates that a 65-year-old male living in Florida with $200,000 to invest in an immediate annuity could expect between $985 and $1,085 per month in annuity income. Monthly annuity income varies based on principle invested, age, gender and current interest rate. Investors can also boost their monthly income by opting to defer their first month’s income as long as possible.
- Annuity Payments Can Be Passed On To Beneficiaries
Investors who opt for an annuity with a cash refund clause can have any of their remaining principle paid out to a beneficiary in the event of an early death. Annuities with cash refund guarantees typically come with lower monthly guaranteed payments, but they provide an extra bit of insurance against the possibility of an untimely death. The typical 65-year-old annuity investor is anticipating at least a decade worth of retirement. But annuities with cash refunds guarantee that the investor’s principle is not simply lost in the event that he or she dies at age 67.
- Annuity Payments Can Be Immune To Market Swings
Standard fixed-rate annuities have…
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