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Managing Your Money

Excerpts from USA Today

An annuity could protect your savings

By Sandra Block, USA TODAY

There's a good chance you will live for many years after you retire. The average 65-year-old will live an additional 17.8 years. A healthy percentage of retirees will live much longer.

But as Americans are living longer, many worry they'll outlive their money. Events of the recent years have stoked those fears. Many retirees have seen their stock investments savaged by the bear market. Those seeking sanctuary in money market funds and certificates of deposit have seen their income evaporate.

The financial services industry has a solution: it's called an immediate income annuity. These products offer a way to ensure you'll receive a check every month for as long as you live. Immediate annuities provide a way to create your own pension, using the money you've saved for retirement.

When you buy an immediate annuity, you give an insurance company your money in exchange for a guarantee that you'll receive a monthly check for the rest of your life or for a specific period of time. The amount of the payment you receive will depend on several factors, including your life expectancy and the age of your spouse if you include a spouse in your coverage.

What you should consider before you buy an immediate annuity:

Control of your money. Even the biggest supporters of immediate annuities say you should only use them for a portion of your retirement savings. The reason: Once you hand over your money, you're locked into the agreed upon monthly payment. If you underestimate your expenses or need money to buy a new car or for an emergency, you cannot get money from your annuity. An immediate annuity cannot be cashed in.. It is an irrevocable one-time purchase.

Your heirs. If you buy an immediate annuity that just provides payments for the rest of your life, the payments will stop when you die. There will be no residual payment to your heirs, even if you die shortly after buying the annuity. However, there are ways to remedy this problem: You can set up the annuity so that it may outlast your lifetime. How? If you're married, you can buy a joint and last survivor annuity, which continues payments as long as you or your spouse is alive. If you're single and have beneficiaries, you can add a clause to your annuity that guarantees payments for a specific period, ranging from 10 to 30 years, if you died before the end of that period. In this case, your beneficiaries will continue to receive payments until the period expires. Of course, the longer the term you add to your annuity the less you receive in monthly payments. Nonetheless, this cost may be worth it since the income will continue to be paid to your heirs after you died.

Inflation. Most fixed immediate annuities provide a level payment for the rest of your lifetime. Some companies offer a fixed level Cost of Living rider which you can elect at the time you purchase your annuity. This sets up an annual percent increase to the amount of your income. In return for a larger paycheck in your later years, you will give up some income in the earlier years.

Fees. When you buy a fixed immediate annuity, you pay no loads nor management fees. That's surprisingly true for most fixed-type annuities. (If you buy a "variable" annuity, however, you will pay what's known as a "mortality and expense" fee plus an investment management fee.) There are no sales fees or back-end charges when you buy a fixed immediate annuity.

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To get free instant immediate annuity quotes just click the INSTANT ANNUITY CALCULATOR on our home page. Or, read more about annuities from the editors of Kiplinger's (below).

Excerpts from USA Today
Excerpts from Kiplinger's Personal Finance

The security of an old-fashioned annuity can make for smooth sailing

Excerpts from Kiplinger's Personal Finance

Steady Flow of Income

By Mary Beth Franklin, KIPLINGER'S

An old idea is gaining ground in the new economy: Guaranteeing a steady stream of income in retirement that you can't outlive. That was the concept behind traditional pension plans. But 21st-century retirees will be looking for ways to turn years of accumulated savings in 401(k) plans and IRAs into reliable streams of income without suffering stock-market upsets.

That's why a growing number of retirees are looking at single-premium immediate annuities as a way of creating predictable income. "It's a do-it-yourself pension for a do-it-yourself world," says one retiree.

When you buy an immediate annuity from an insurance company, you exchange a lump sum of cash for the assurance that you will receive monthly checks for the rest of your life (or, for a specified period of time). The size of your checks is based on your age and sometimes gender (women get less because they tend to live longer) and how much you invest. How much you get each month also depends on whether you buy an annuity with payouts that cover your lifetime only, your lifetime but with a guaranteed minimum term (so all is not lost if you die prematurely), or your life and that of your spouse.

From heresy to gospel

Most financial writers used to think that turning over a chunk of a client's nest egg to an insurance company in exchange for level guaranteed payments was sheer heresy -- particularly when stocks were routinely producing double-digit returns.

But recent findings show that a retirement portfolio divided between an immediate annuity and a managed stock account could supercharge retirement security, providing both more guaranteed income and larger payouts than from a fully managed portfolio. It makes sense to hedge your bets by using part of your cash for an immediate annuity to establish a guaranteed stream of income while leaving the rest of your money invested for growth.

The assets invested for growth can help protect against inflation. A retiree can always buy an additional annuity later in life to increase monthly income and get a bigger bang for his buck because the payouts increase with your purchase age. While you're still counting on growth, by diverting part of your cash to an annuity you reduce the stakes if the market slumps.