MassMutual RetireEase Single Premium Immediate Annuity Review
Once you retire, your only job should be to enjoy life.
Retirement can mean different things to different people. At its most basic level, retirement is about having the freedom to work, travel or just relax – without worrying about whether you will have the money you’ll need.
Massachusetts Mutual Life Insurance Company (MassMutual) specializes in retirement income solutions designed to help you live retirement your way. A MassMutual RetireEase (RetireEase) single premium immediate fixed annuity offers a way to add a source of guaranteed income to your overall retirement plan. A single premium immediate annuity generates a stream of income that is unaffected by financial markets and is guaranteed for life or for a period of time you choose.
How much income will you need?
Retirement income planning is very different from the process of accumulating assets. As you get closer to retirement, it’s important to understand some of the challenges you may face. Your financial professional can work with you to create an income strategy that helps offset these challenges.
Five key retirement risks
The possibility of outliving your assets. Advances in medicine and technology are allowing people to live longer – and that translates into extended retirements and a strain on savings. Living a long life is wonderful, but it could put you at risk of running out of income.
Health Care Risk
The risk that health care expenses may derail your retirement income. Although the growth of health care costs has slowed, these costs are still increasing faster than the overall rate of inflation. There is no way to predict what future health care costs will be. It’s important to factor health care costs into your retirement income planning.
A reduction in purchasing power over time. Inflation refers to the general rise in prices of goods and services. Even low inflation reduces your purchasing power over time because as prices rise, a dollar buys less.
In 2013, for example, it cost $234.48 to match the buying power of $100 in 1983.
Inflation can put more pressure on your retirement portfolio because more money will need to be withdrawn from your portfolio to maintain your standard of living.
A reduction in portfolio value due to a flat or down market. Investment losses early in retirement can reduce a portfolio’s value and its overall sustainability. Depending on how your portfolio’s assets are allocated, you may end up drawing down your money faster than you originally expected.
The risk of withdrawing too much money too quickly. This can place stress on your retirement portfolio, and increase the withdrawal rate required to maintain your desired income. To avoid depleting your portfolio, you might need to decrease your withdrawal rate, make lifestyle modifications – or both.
Probability of meeting income needs. The following table shows how different withdrawal rates, combined with various portfolio allocations, can affect the chance of meeting retirement income needs over a 25-year period. For example, if you were invested 100% in bonds and used a 5% withdrawal rate, you would have a 32% chance of meeting your income needs over a 25-year retirement. As the chart illustrates, the higher the withdrawal rate, the more likely it is that your money will run out.
Make a sound transition
Your financial professional can help you clarify your retirement goals, assess the assets you have, estimate your retirement expenses and identify any income gaps. This information can be used to tailor a plan that reflects your risk tolerance, time horizon and unique situation.
Sound planning begins with a diversified retirement portfolio that helps address the need for:
1. Predictable income that is secure – no matter what happens in the market.
2. Access – a source of liquid and safe assets for those times when life changes and you need flexibility; and
3. Growth opportunities – so you can accumulate the assets you’ll need to sustain your lifestyle throughout retirement.
A RetireEase single premium immediate annuity is designed to provide a source of predictable income that is guaranteed to last for as long as you live or for a period of time you choose. This is the income that you may need to pay for necessary expenses such as housing, utilities, taxes, fuel, food and health care.
The final determination of expenses that you consider “necessary” is up to you. No matter what you include on your list of “essentials,” however, you will need a secure source of predictable income to pay for them.
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RetireEase – an immediate income annuity
Sometimes called “an income annuity” RetireEase provides a secure source of income that can help take some of the financial uncertainty out of retirement.
Key benefits and features:
Guaranteed income – A stream of guaranteed income payments can last for life or for a period of time you select.
Predictability – A fixed annuity’s income stream is not affected by fluctuations in the stock market. At the time you purchase a contract, you know how much income you will receive and when.
Tax efficiency – If you’ve already paid taxes on the money used to purchase the annuity contract, a portion of each annuity payment will be tax free, until the total amount of income you’ve received equals the amount of your single purchase payment.
Flexibility – RetireEase offers you a certain amount of flexibility, including the ability to:
1. Add an inflation protection feature – When elected, MassMutual Inflation Protector will automatically increase income payments by your choice of 1%, 2%, 3% or 4% annually. This feature may only be added when a contract is issued.
2. Adjust a period certain – If you choose a period certain-only income annuity option, you can decrease or increase the period of time you will receive income payments.
Select a payment option that provides for your heirs – Certain annuity payment options provide benefits to heirs, as long as they are named beneficiaries on your contract at the time of your death.
Guaranteed income starts here
You’ll receive a steady stream of income payments by check or through direct deposit. Because this is an immediate annuity, income payments must begin within the 12-month period after your contract is issued.
You can fund a RetireEase annuity contract by rolling over assets from an individual retirement account and/or an employer-sponsored plan, such as a 401(k).5 You can also fund the annuity by using a portion of your current savings. The minimum single premium is $10,000, so you have the flexibility to fund your contract with only a portion of your overall assets.
Step 1 – Select your annuity payment option
Annuity payments can provide a guaranteed income for life, a specific period of time or a combination of both. The best choice for you will depend on factors, including whether you need income for one life or two (a spouse) and whether leaving money to a beneficiary is important to you.
How RetireEase annuity options work
Single Life - Payments are made for as long as the annuitant is alive and end upon his/her death.
Joint and Survivor Life - Payments are made for as long as the annuitant or joint annuitant is alive. All payments end upon the death of both annuitants.
Period Certain-Only - Payments are made for a guaranteed period of time (from 5 to 50 years).6 Upon the annuitant’s death, payments will continue to the named beneficiary for the remainder of the guarantee period. With this payment option only, the period may be lengthened or shortened after the first contract year, subject to certain restrictions.
Lifetime Payment Options - These options provide longevity protection because they guarantee income that can’t be outlived. Options that include additional benefits, such as access to cash withdrawals or beneficiary protection, generally impact the amount of income paid.
Single Life or Joint and Survivor Life option with a Period Certain - Payments are made for the life or lives of the annuitant(s), but payments are guaranteed for a minimum amount of time (a period certain) if death should occur prior to the end of the period selected. The beneficiary (or beneficiaries) named on the contract will receive any remaining payments in the guaranteed period.
Example: Single Life income payment with a 10-year Period Certain – Annuity payments are guaranteed for a minimum of 10 years. However, if the annuitant lives longer than 10 years, payments will continue for as long as he or she lives. If the annuitant dies before the end of the 10-year period, payments will continue to the beneficiary until the end of the 10-year period.
Single Life or Joint and Survivor Life with Cash Refund - Payments are made as long as an annuitant is alive. If the annuitant(s) die before the total amount of income payments received equals the single premium amount paid for the contract, the difference will be paid in a lump sum to the named beneficiary.
Single Life or Joint and Survivor Life with Installment Refund - Payments are made as long as an annuitant is alive. If the annuitant(s) die before the total amount of income payments received equals the single premium amount paid for the contract, the difference will continue to be paid as scheduled income payments to the named beneficiary.
Joint and Survivor Life with Reducing Payments at Death - The surviving annuitant will receive reduced payments for as long as he or she lives. Reductions can be for one-half, two-thirds or three-quarters of the original payment amount. There is also the option of choosing whether the reduction happens upon the annuitant’s death or the first death (annuitant or joint annuitant).
Step 2 – Select payment frequency
The frequency of payments will depend on how often you wish to receive income for purposes of planning your budget and lifestyle. You can choose to receive income payments:
Monthly Quarterly Semi-annually Annually
Step 3 – Evaluate additional features
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MassMutual Inflation Protector is an optional feature that can help offset the effects of inflation on your annuity payment purchasing power. This feature automatically increases the amount of each annuity payment by 1%, 2%, 3% or 4% each year.
The higher the annual percentage increase, the lower your beginning annuity payments will be. It’s important to weigh the trade-off between receiving lower beginning annuity payments that increase gradually each year and receiving a higher beginning annuity payment that does not increase over time.
This feature and percentage may only be chosen when your contract is issued and may not be changed. MassMutual Inflation Protector is not available with the Life – Installment Refund annuity option. It may be limited or not available at all due to RMD rules.
MassMutual Inflation Protector Illustration
To see how including MassMutual Inflation Protector might affect a hypothetical monthly annuity payment for a 65 year-old man, refer to the chart below. Note that without this feature, the benefit amount remains flat over time at $532. Adding an annual increase lowers beginning annuity payments and increases those that come later.
Cash withdrawals for period certain annuity options
Immediate annuities are first and foremost designed to provide a source of guaranteed income. Withdrawals are subject to certain restrictions and may incur surrender charges in contract years two through nine. (See page 9 for detailed surrender charge information.) In addition, withdrawals may result in income tax liability and early withdrawal tax penalties.
Any withdrawals taken from a contract will reduce the amount of subsequent annuity payments. If access to cash is important, products with more liquidity may be a better choice.
Withdrawals are only permitted for RetireEase contracts that include a period certain:
Period Certain-Only – One full or partial withdrawal is allowed each year, after the first contract year.
Single or Joint Life with Period Certain – One partial withdrawal is allowed each year after the first contract year.
The minimum withdrawal amount is $5,000. The amount available for a partial withdrawal is limited so that each remaining guaranteed payment is at least $100. The maximum withdrawal amount is the present value of all remaining future period certain payments, less any surrender charges.
If all annuitants named in a contract die before the end of the period certain elected, a beneficiary can take a full cash withdrawal or continue receiving all future income payments that are due. If a full cash withdrawal is taken immediately after the death of the annuitant (or last surviving annuitant, if a joint and survivor life contract), no surrender charge will apply.