If you read my views on investment myths a few blogs ago, you probably know that making a generalization about any investment vehicle, including annuities, is short sighted. Some annuities are income only, like social security or pensions which create an income stream. Some annuities work as deferred annuities like CDs, where money is put in and it matures at a certain date. In truth—there are many, many types of annuities to choose from, and yes, the selection can range from “good,” to “bad,” to just plain ugly. With a little research and the help of a savvy investment advisor, you can find (and benefit from) an appropriate annuity product.
If you haven’t already, you might want to consider Longevity annuities. They’re the insurance industry’s answer to future retirees who are concerned about having enough money for a comfortable retirement. These investment vehicles aren’t new, they’ve actually been around for about 10 years. Since a new law was passed allowing their purchase inside a 401k and/or IRA plan, big names like New York Life, Guardian and Mass Mutual are offering them. The only stipulation is that the account holder must begin collecting on the policy by age 85, rather than age 70 ½, (the age when required minimum distributions must begin).
To participate, you can take up to 25% or $125,000 (whichever is less) of your 401k or IRA account and buy a longevity annuity. The payout depends on when you start taking the income. Basically, the longer you wait, the lower your life expectancy, which means your monthly checks will be bigger. The downside is that if you die before you start receiving the income, the entire balance would be lost. Once you’ve already started receiving income, however, you can set up the annuity so that any remainder you have in payouts after you pass away can go to your beneficiaries.
Like many financial professionals, we’re big fans of these products because of their simplicity. They’re transparent, simply structured annuities with big benefits for retirees. Of course, like any financial product, they do have a downside—liquidity and flexibility. If you need immediate access to this income, then a Longevity annuity is not for you. But for younger investors’ intent on creating a lifetime income stream, this is a great option to consider.
For more information on annuities and other strategic retirement solutions, call Mooney Lyons at 1-847-382-2600 or visit us at www.mooneylyons.com. We’re here to help.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
Annuities have limitations. If you decide to take your money out early, surrender charges may apply. If you are under 59 ½, you may also have to pay an additional 10% tax penalty on top of ordinary income taxes. Guarantees are based on the claim’s paying ability of the issuing insurance company.