Revealing your earnings on an Immediate Annuity
Understanding the earnings your money generates for you in an immediate annuity helps your evaluate your investment. A single premium immediate fixed annuity (SPIFA) gives you a fixed monthly payment for the term of the annuity. That term may be a certain number of years or for the remainder of your life. The amount the insurance company will pay you depends on the amount of premium you pay and prevailing interest rates in addition to expenses and your life expectancy if it’s a lifetime payout. Companies will quote you their monthly payout to you but not the interest rate (interest rates on immediate annuities are typically 2%-4%). Nevertheless, since all earnings of the company are dependent on interest-based investments, higher prevailing rates will allow them to make higher monthly payments – and vice versa. Earnings and taxation of your investment What you earn is the excess of payouts over the premium you pay. Every payout is considered part earnings and part return of premium. The fraction of each payout that’s taxable is the ratio of the total excess payout to the premium. To illustrate let’s take a hypothetical example of the payout over a 10 year term certain to illustrate [...]
Categories: immediate annuity Tags: immediate annnuity
A Fixed Term Single Premium Immediate Annuity Helps Keep You in Control
In retirement, a guaranteed income can reduce your stress and allow you a less-panicked approach to investing. With no pension, you may be relying on Social Security as your only assured income. Buying a life annuity can guarantee that extra income, but you lose both control of your assets and their use as your legacy. What’s a solution to this dilemma? The fixed term SPIA solution Use a single premium immediate annuity (SPIA). In this case we’re looking at a fixed term SPIA where you purchase the SPIA for an immediate payout, but only for a fixed term – perhaps 5, 10 or 15 years. The idea is to buy the fixed term ingle premium immediate annuity with only 50% of your savings. The term you choose depends on how much extra assured income you need and what you plan to do with your other 50% of savings. Let’s see some examples for this approach. New retiree – getting adjusted Take this hypothetical example. If you’re a 66 year old man beginning retirement with $400,000 in savings but no company pension, you may want to complement your Social Security income with single premium immediate annuity income while you pursue some endeavour for [...]
Categories: immediate annuity Tags: immediate annuity
Should You Choose an Immediate Variable or Fixed Annuity?
When you buy an immediate annuity, you pay a lump sum to an insurance company and begin receiving monthly payments right away. An immediate life annuity is attractive to retirees because it guarantees them a lifetime income. But should they choose an immediate variable annuity (IVA) or an immediate fixed annuity (IFA)? The IFA gives you a guaranteed but fixed payment – generally monthly for your lifetime. That’s because the underlying annuity investment relies on long term bond investments purchased by the insurance company. But in twenty years the purchasing power of that fixed monthly payment may be significantly less due to inflation. The IVA also offers a lifetime (monthly) payments, but those payments will vary. That’s because the underlying annuity money is invested in the subaccounts that fluctuate with the underlying securities (e.g. stocks and bonds). The attraction of the IVA is based on the hope that over time, the investment markets will rise and help offset inflation by producing larger monthly payments. The danger is that the stock market can go into a slump and reduce those payments. With the IVA, you can change how your annuity is invested among subaccounts associated with it. You can also [...]
Categories: immediate annuity Tags: immediate fixed annuit or immediate variable annuity
Might You Live to 100?
Live to 100. Sounds great. But what are the downsides of longevity? “How can there be downsides?” you may ask. After all, you’d have more time to golf, go fishing, and spend with the grand-kids. Well, the risk may be that if you hadn’t planned to live that long you could end up running out of money. Very few people have sufficient retirement savings to live to 100. Yet, if you are already age 70, life expectancy of living to age 100 is 3% (one of every 33 people). If you make it to age 80, then your life expectancy to 100 jumps to 4% (one out of 25 people). So how long of a retirement should you plan for? How can you prepare for significant longevity? According to the IRS longevity tables, a 70-year-old person is expected to live for 17 more years to age 87. However, this is an average. Half of the 70-year-olds will live longer, and half will not. Therefore, a 70-year old individual who is basing his or her retirement plan and spending habits on living to 87 is rolling the dice. Furthermore, when you consider that there are more than 70,000 U.S. centenarians who represent the fastest-growing segment [...]
Categories: immediate annuity, longevity, reverse mortgage Tags: fixed annuity, life expectancy, longevity, prospectmatch, reverse mortgage
How to Possibly Cover Those Fixed Expenses
Even the best experts can’t predict how certain investments will perform or the income that you’ll see from them. Nevertheless, you might need a set amount of money each month to pay non-discretionary expenses like mortgage payments, auto loans, and life insurance premiums. Frequently these monthly outlays are fixed for a number of years. To pay these predictable expenses, you may want to consider a fixed, immediate annuity to provide a steady stream of income for your lifetime, your spouse’s lifetime, or the duration of the loan. And if you don’t like paying taxes, you may like the idea that part of that regular check from an immediate annuity is a tax-free return of your investment. If you find comfort from social security check, having the fixed income stream from a lifetime immediate annuity is quite similar. But what about expenses that you will always have and most likely will go up each year, such as real estate taxes, auto insurance, or homeowner’s premiums? Some immediate annuities offer several options to meet your future needs too, including an inflation protection rider that will let your income rise annually. Ability to make payments based on claims-paying ability of Annuity Company. Not [...]
Categories: immediate annuities, immediate annuity Tags: immediate annuity
