With the increasing lifespan of our country’s population, the retirement years are stretching even further over the horizon than ever. Statistics now indicate that large numbers of the retired will live to be 90-100 years old, placing a greater burden on the present funding for retirement.
Couple this with the recent losses in the stock market over the last few years, and the growing trend among large companies to reduce pension benefits, retirees have begun to question whether they are adequately prepared for their retirement. Many have begun looking around for ways to ensure they don’t run out of money before they run out of time.
Some potential retirees are choosing to work longer in an attempt to build a bigger nest egg. Others are reducing the amount of income necessary by downsizing their home or paying off debt earlier. And in order to ensure a lifetime of income, many are turning to single premium immediate annuities in tandem with the more traditional deferred annuity to insure their security in retirement.
How does it work? To begin with, the purchase of an immediate annuity offers the option of choosing a payout method. This can be for life, restricted to a certain time period, or a joint and survivor method, which will continue to pay after the death of the first spouse. The idea of a guaranteed income, no matter how long you should live, is a definite plus considering the uncertainty in other types of investments.
The purchase of a deferred annuity along with the immediate annuity provides the retiree a vehicle for long-term tax-deferred growth that would not be available from other investments such as savings accounts or CDs. Because of the increasing lifespan of retirees, many are able to take advantage of the compounded growth the tax-deferral offers, increasing their return and providing additional income down the road should it become necessary.
The combination of these two plans offers the retiree a sense of security that would be hard to duplicate with any other type of investment. The idea of a guaranteed income, coupled with long-term tax-deferred growth is the ideal scenario for most seniors. Coupled with the flexibility of structuring the annuity income to fit their needs, the combination of deferred and immediate annuities can provide a peace of mind that a major source of income will continue uninterrupted over the course of a lifetime.
Liquidated earnings are subject to ordinary income tax, may be subject to surrender charges and, if taken prior to age 59 1⁄2, may be subject to a 10% federal income tax penalty.
Guarantees and payment of lifetime income are contingent on the claims paying ability of the issuing insurance company.