I read this MarketWatch article by Michael Edesess and found the latter part very informative, so I thought I’d share.
Excerpts:
A simple annuity, also called a “Single Premium Immediate Annuity" (SPIA), is a financial instrument that guarantees you a consistent monthly income as long as you live. It should not be confused with the much more complicated, expensive, and much less useful annuities with other names, such as variable annuities or fixed-income annuities.1
His calculations show that for an investor to be 95% certain of not running out of money with a safe withdrawal strategy from a 60%/40% stock-bond portfolio, the strategy would be to withdraw 3.5% of the initial investment in real (inflation-adjusted) dollars each year.1
If the portfolio started with $500,000, for example, the average annual lifetime income would be $23,000. With the SPIA, the average annual lifetime income would be $33,500, and the certainty of achieving it is greater than 95%.1
Thus, both the certainty of not running out of money, and the lifetime income, are much greater with the SPIA than with the “safe withdrawal” strategy. This, of course, assumes that the investor has essentially zero interest in leaving a bequest. But this is the case for many baby boomers. Their children are independent, or they want them to be, or they have no children.1
In these times of relative hardship for most middle-class retirees, the majority of baby boomers in the United States are more concerned that they will not have enough money to live out their years with a degree of relative comfort than they are with leaving a legacy. Given this objective only, it’s almost impossible to beat a simple annuity.1
Note: It is important to know that there are some payout options for SPIA’s that are not mentioned in the article. One important payout option is that you still can leave a legacy (via a beneficiary) however that will cost you a little bit more by lowing the amount of your monthly payout.
Below are some payout options that many insurance companies offer.
- Period certain: (Fixed Number of Years)
- Single life only
- Single life with period certain:
- Single life with cash refund
- Single life with installment refund
- Joint life with survivorship
- Joint life with survivorship and period certain
Definitions of each of the options listed above: (Each insurance company the options may vary)
• Period certain only: This option provides income for a fixed number of years set at the beginning of the annuity. If the annuitant passes away during that time, payments would continue.
• Single life only: Payments are only during the life of the annuitant. If the annuitant passes away, then no further payments are made to an estate or any other person.
• Single life and period certain: Selecting this option provides income for the life of the annuitant - with a guaranteed payment period for a fixed number of years set at the beginning of the annuity. If the annuitant passes away before the period ends, payments will continue for the remainder of that period.
• Single life with installment refund: This option guarantees that payments will continue during the life of the annuitant. After the annuitant passes away, payments continue until the total payments are equal to the single premium originally paid.
• Single life with cash refund: Payments are only during the life of the annuitant. If the annuitant passes away before the total payments received equal the premium, a lump-sum payment is made equaling the difference between the original single premium and any payments already received.
• Joint life with survivorship: Selecting this option creates an income stream paid for the life of the annuitant and the lifetime of his or her spouse. After the annuitant passes away (or his or her spouse), payments continue for the remainder of the surviving spouse’s life.
• Joint life with survivorship and period certain:
This option provides income for the annuitant and
his or her spouse’s lifetime – with a guaranteed
payment period for a fixed number of years).
Should the annuitant or his or her spouse pass
away, payments continue for the remainder of
the surviving spouse’s life. If both annuitants
pass away before the period ends, payments
will continue for the remainder of the period.
Click on the web link below to read the entire article OR just scroll about half way down the article to the heading section called "Simple Annuity."
1. Source: MarketWatch article by Michael Edesess
https://www.marketwatch.com/story/this-one-investment-move-can-give-you-lifetime-yearly-income-in-retirement-2019-04-29
Note: Annuities can be confusing to many people. As an "independent licensed agent" I try to explain things to you in simple terms so you feel comfortable making a decision. Then I can help you choose an annuity that you feel best fits your needs from a large choice of different insurance companies. Plus if you choose to work with me you will have personalized service by a local independent agent that can shop rates for you, rather than working with a captive agent working for just one insurance company. If you would like my assistance to discuss and/or start the process of getting an annuity please call me at 941-404-5334.