Advice Needed on Immediate Annuity

Q:

I would like information on immediate annuities. How is the payout determined? Do interest rates have any bearing on the payout? If I purchase the annuity, I will be 72 and my wife 63.

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We are considering joint life income (100% to the survivor) with no payments to beneficiaries. We will have $120,000 to purchase the annuity. Estimated monthly income would be $702.00 After purchasing the annuity we would still have $60,000 to invest.

My wife plans to work until age 65 at which time her 401(k) will be approximately $200,000. My SSA is $1470/mo., and my wife's will be $1,800/mo. When my wife retires we will be debt free, no house or car payments. Right now I need the $702 monthly payment to supplement my SSA. What is your advice?

A:

Based on your question, I'm going to assume you're asking about an immediate fixed annuity.

Numerous factors affect the pricing of an immediate fixed annuity such as: when you start receiving the payments (you can defer starting the payments for up to a year), your age, gender and life expectancy, your state (some have a premium tax), interest rates and bond yields, the profitability and administrative costs of the insurance company and the payout option selected.

In addition to the information you provided, there are numerous other things to consider such as: the source of the funds for the annuity (pre-tax or taxable?), your projected expenses, potential inflation and tax rates, your health and your life expectancies to determine if the purchase of an immediate fixed annuity would be suitable for your specific financial goals and circumstances.

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Probably the most productive way for you to evaluate your situation and to answer your specific questions is to consult with a financial planner. If an immediate fixed annuity is determined to be appropriate for your situation, they can help you compare the proposals and ratings of several insurance companies so you are more likely to select the one best suited for your financial goals and circumstances.

It's critical that you consider the financial stability of the insurance company. A fixed annuity is a general asset of the insurance company which makes it subject to the creditors of the insurance company.

Source: dallasnews.com - 07-02-2009