Immediate Annuities: Creating Income
By Senior Estate Planning Attorney Rick Law of Law Elder Law in the suburbs of Chicago
None of us wants to be out of money during our lifetimes…When we are out of money, we are out of options. Making income last a lifetime is a critical financial function in retirement planning, and we often receive questions regarding the “immediate annuity”.
You can buy immediate annuities in many different forms. The most common forms are:
Life-only annuity – This type of annuity is for the life of the annuity owner. The income paid from the annuity expires at the death of the annuitant. With this type of contract the annuitant assumes a portion of the longevity risk, but also has significant gain if his/her lifespan far exceeds the norm. To illustrate, we’ll assume our annuity buyer is an 82-year-old male. The 1980 Commissioners Standard Life Expectancy Tables establish his typical mortality to be 6.18 more years. If this 82-year-old male lives to be 100 – 12 years beyond the standard life expectancy stated in the Commissioners Table – chances are very good that no other investment could even come close to the guaranteed yield the life-only annuity would provide him. Conversely, if he died within three years from the date of purchasing the annuity, he would have received monthly income in return, but the monthly income paid out would be less than the amount funded into the annuity – obviously not the outcome we are looking for. The longevity risk of a life annuity is certainly a gamble. You may win big, but you may also lose – it just depends on how long you live.
Period-certain annuity – This type of annuity pays out for a specified period of time. For instance, you can buy a period-certain annuity that is paid out over a 5-year term. That annuity will pay out in equal installments over 60 months. The payout is not affected by the stock market, interest rates, CD rates, etc. – it is guaranteed by the issuing insurer to remain at the exact payout amount agreed upon at the issue of the annuity contract through the final payment. So if you own a 5-year certain annuity for a monthly benefit of $1,200, you would get $1,200 per month for 60 months and $0.00 from month 61 going forward.
Life with installment refund immediate annuity – This is a hybrid of the two annuity types described above. With this type of annuity the payments are guaranteed for life, just like the life-only annuity. The twist is, if you die prior to all of your money being paid back, the insurer guarantees that the annuity will continue to pay out until you or your beneficiary (after your death) receives at least the initial invested amount.
If you’re ready to start getting your estate in order and secure your assets for the “worst-case” scenario, please give our office a call at 630-585-5200 or 800-310-3100. Your first consultation is absolutely free. We’ll let you know what steps you need to take, right now, to protect yourself and your family. Call now.
Rick L. Law, Attorney, Estate Planner for Retirees.
Rick was named the #1 Illinois elder law estate planning attorney by Leading Lawyer Magazine. He has been quoted in the Wall Street Journal, AARP Magazine, TheStreet.com, and numerous newspapers and articles. Rick is the lead attorney for Law Elder Law, LLP, focusing in Estate Planning, Guardianship, and Nursing Home Solutions. His goal is to give retirees an informed edge when it comes to dealing with an uncertain future. Get flexible retirement strategies that work during good times and bad, plus information on how you can save your home and assets from being used to pay for long term care.