Immediate Income Annuities

[bigbill]

I have been looking at this route as an option for additonal retirement income vs tradional IRA.
Does anyone have an opinion pro or con??

[batman911]

Most unbiased financial advisors do not recommend annuites. Take a good long look at what they are charging you. Recommend you get someone not involved in the sale of annuites to give you the straight facts.

[KayakerNC]

Most unbiased financial advisors do not recommend annuites. Take a good long look at what they are charging you. Recommend you get someone not involved in the sale of annuites to give you the straight facts.

You may be lumping SPIA's with other types of annuities. Actually Single Premium Immediate Annuities are one of the better products.
:click:
http://books.google.com/books?id=cXXqM8b5e_AC&lpg=PP1&dq=bogleheads%20guide%20to%20retirement&pg=PA105#v=snippet&q=immediate%20annuities&f=false

[EdV]

As KayakerNC is pointing out, these Immediate Lifetime Annuities (aka SPIA’s) are not those variable annuities that many people advise against. They are a great option for retired folks who have a certain amount of money they don’t need to leave to the kids and grand-kids and that will return a pretty high rate (~ 7.5%) forever until they and/or their spouse dies.

They are not popular with these so called “investment advisors” because they don’t pay large commissions. But they pay higher than average interest and it will continue to pay no matter how long you live. Of course, the day you die (and or your spouse dies if a joint policy) the insurance company keeps the premium, there’s no death payout. But that’s the whole point of this type of investment anyway.

Here’s a link to the most popular on-line connection to this type of annuity and will allow you to play with the numbers and get an idea of how much you (and your spouse) can expect to receive for the rest of your life:

Immediate Annuities (http://www.immediateannuities.com/)

And no, I have no affiliation with this, it’s just something I’ve researched extensively and intend to use.

[BobKat1]

I got a quote from an AARP sponsored immediate annuity thru New York Life. As an example, $100,000 pays about $550 per month. There is a death benefit - If the amount of the payments hasn't exceeded the initial investment your beneficaries receive the difference. Not sure what the costs/fees are.

Probably not for us, but I was curious when I saw the ad.

[brostholder]

I've decided to go a different way, and so far it's working out pretty well. I have invested in a bunch of pipeline stocks that fall under the category of MLP's (Master limited partnerships). Because of some laws that were passed during Bush-Cheney, the dividends are considered tax exempt because they are not really dividends, but are considered a "return of capital". So far I am averaging about 9% tax free. But please!!!! I would hate for someone to take financial advise from me and then have it not work out. But you may want to check with your financial advisor and see if it makes sense to have these as part of your portfolio.

[coach]

A stragagy that is interesting and very seldom used is to delay social security past your normal retirement age to gain the increase in benefit for your lifetime and also the lifetime of the surviving spouse. Think of the delay as purchasing an immediate annuity. If your full retirement age is 66 and you waited a year to claim benefits, your benefit would be increased by 8%. I know this is not for everyone, but if you have funds to use or invest in an annuity and are in good health this might make sense. The benefit would be adjusted for inflation and have no fees or commissions. It is especially useful if the person delaying the benefit has a younger spouse.

Just an idea. Food for thought.

[NJblue]

The problem that I have with the SPIAs is that they generally are not inflation adjusted. With the kind of deficit spending that we are now involved with as a nation, I see the potential (almost certainty) of very high inflation in the future. If this occurs, what seems like a nice, safe, monthly return will rapidly decline in purchasing power.

Because of this, I have been looking at some of the annuity products that are linked to market performance. Yes, they may incur some charges, but they also provide a safety net against inflation and at the same time provide protection of the original principal. I have also been reading that some of the "experts" have been changing their tune about these products. I haven't pulled the trigger on these yet, but I still am considering them.

[eweissenbach]

I worked in management for New York Life and Principal Financial Group for 25 years and have extensive experience with annuities. An immediate annuity can be set up in numerous ways.
The biggest payout would be a single payor no refund annuity - pays the annuitant monthly, quarterly, semi-annually or annually for life with all obligations ending at the death of the annuitant.
You can set up payments with guarantees of 10-20 or other multiples of years - the longer the guarantee the lower the payout. In other words the annuitant gets the payment for life, with the beneficiary getting the payment for the remaining number of years if the annuitant dies prior to the guarantee period expiration. You can also choose to have a refund of the remaining unused principal to a beneficiary if the annuitant dies prior to the principal being destributed.
You can set the annutiy up as a joint survivor benefit, meaning the payout will continue until the last of the two people dies. The joint survivor benefit can also be set up as less than a full benefit for the survivor to provide a larger initial benefit. eg: 50% of the annuitants benefit to the surviving spouse. Guarantees can also be provided on a joint survivor benefit.
In other words you can tailor the annuity (SPIA) to whatever makes you comfortable, realizing that the more guarantees, the more people covered, or the longer the guarantee, the less the income payout will be.
SPIAs can be a nice way to use a portion of your nest egg to assure a baseline of income, and allow your remaining nest egg to grow and perhaps replace the money you used for the income.
Now, another way to produce income, provide some upside potential, while keeping a level of protection, is to buy a kind of hybrid variable annuity. The one we sold at Principal worked basically like this: You put your money in a variable annuity and begin taking 5% out. The 5% is guaranteed, so even if the underlying investment drops, you still receive 5% or the original investment for life. If your investment increases, after 5 years you can lock into a new 5% payout based on the increased amount, again guaranteed for life. Every 5 years you would have the option to lock in a new amount provided the investment has increased. So you get both protection and market opportunity. There is, of course a cost for these features that are built into the annuity, but they are generably reasonable with a reputable company. Insurance companies are in the business of making small margins on large amounts of money using actuarial sciences, and the products are a sound bet for many people.

[cybrgeezer]

Two people have mentioned New York Life, so I'll tell you what I have already done and may do later.

About two years ago, I rolled some money out of my 401(k) to buy two NYL annuities. One, bought with qualified funds, has an annual increase of 4% every year on the anniversary date. The other, from an old profit-sharing plan of post-tax money (non-qualified funds when taken out) could be put into an annuity with a 5% annual increase. Because of the different amounts, this works out to an annual "raise" of 4.1%, more than I had gotten from an employer in many years.

While not literally indexed for inflation, they are nice increases. Because of my age (I'll be 65 in November), I've been told if I roll over whatever is in my 401(k) at the time I retire, the maximum annual-increase annuity I can buy is one with a 3% raise. Or, I could go for a fixed annuity with that money, at least the qualified part of it, for even more income immediately but no raises. I plan to take the already-taxed, non-qualified, money, which is held as a Roth IRA by NYL, as cash to be put into a money market account or CDs as an addition to my current savings/emergency fund.

Or, of course, I could leave it alone and entertain other ideas. The bottom line is: there are more varieties among annuities than straight, fixed income and variable and to make any blanket statement that they are all bad or all good is of little use.

Examine, ask questions, get information from plenty of insurance companies and be sure to ask about fees. NYL's fee structure, along with the fixed raises, is what sold me. With the money I have at retirement, I may look at what another company can do for me, just to spread the wealth around a bit. But you can be sure I'll study it thoroughly.