With annuity, you can decide tomorrow’s income stream today
The ability to enjoy the benefit of a regular income after retirement is indeed the beauty in choosing to invest in annuity at the end of someone’s working life. Any other investment options, say- programmed withdrawal- could have been the best as well, though depending on the individual’s circumstance, but for the fact that someone could live beyond one’s expectation makes annuities the favourite.
Oluseyi Ifaturoti, managing director, CrystaLife Assurance plc, says: “Nothing can give rest of mind than that you are sure you will never suffer hunger or lack medical attention till you die.
“We are not saying that there may not be support from children or family members, but we are emphasising that it is better you do not rely on anyone for your survival because it can be very frustrating.”
Experts from Moneywatch recommend immediate fixed annuity if you desire to enjoy a life time income. But to them, a lot of issues must be put into consideration so that the right decisions would have been taken at the end of the day.
With an immediate fixed annuity, you give an insurance company a lump sum of money, and they immediately begin paying you a monthly income that’s payable for the rest of your life, no matter how long you live. One common variation, called a joint and survivor annuity, continues a specified percentage of your income after your death to a spouse or beneficiary. It’s also possible to build in a specified annual increase in your monthly income, say 3 percent, in case you’re worried about inflation. Of course, either of these variations will cost you more money.
So what should you look for when buying an immediate fixed annuity? It boils down to two things: Price: How much monthly income does your investment buy and the safety of the insurance company: How secure is your annuity? This latter point is important because if the underlying insurance company goes bankrupt, your only recourse is the guarantee, if any, that’s offered by your state insurance guaranty fund.
Here are the expert’s five tips for shopping for an annuity that best fits your needs:
* Shop, shop, shop. There are many highly-rated insurance companies that offer immediate fixed annuities, and at any point in time, one or two might be offering more monthly income for your investment than the rest, due to their own capacity and marketing strategies.
* Safety first. An immediate annuity should be considered the safe part of your retirement income. It’s suggested that you deal with insurance companies with the highest two or three ratings from the rating agencies, such as A.M. Best or Standard & Poor’s. If you think you’ll be rewarded by taking an investment risk, do that with the portion of your retirement savings that you don’t invest in an immediate annuity and invest these amounts in the stock market where there’s more potential reward for taking investment risk.
* Keep it simple. Resist arguments from insurance agents to add costly riders, such as coupling the annuity with life insurance or long-term care insurance. This just makes it difficult to compare shops, and could add to the cost of your annuity.
* Understand the treatment of sales commissions. These come right out of your investment, higher commission to the agent means less monthly income for you. The best way to deal with this is to make sure that the amount of the monthly income quoted is net of sales charges, so that your comparison shopping takes the commission level into account. Whether you’re working with an insurance agent or a shopping service, ask about the commissions. If you can’t get a straight answer, go somewhere else.
*Consider diversification. You might consider spreading your annuity purchase among two or three insurance companies to reduce your exposure to insurance company’s bankruptcy.
