Income Annuity Accounts Explained
Your retirement will come fast. Are you ready for it? Setting up your own retirement plan can be complicated, so it is necessary to understand some available options that can guarantee income for your lifetime. Consumers who need a guaranteed, stable monthly or yearly income will establish an immediate annuity account. Also know as an annuitization or an income annuity, these accounts provide a systematic payment for a specified period of time to the owner and the named beneficiaries. The payments will consist of principal and interest and continue for the term selected. Several factors will determine the monthly payout including the annuitant’s age and gender, amount invested, current interest rates, payout duration, and whether the owner(s) wants the payment to be adjusted for inflation.
Annuity Terms to Choose From
One of the first options to determine is the duration of the income stream. A client might only need income for ten years as part of a structured settlement or litigation award. In this case, an initial deposit can be calculated in order to determine a guaranteed monthly payment for ten years. In other instances, clients will need guaranteed income for their lifetime. This is known as a life annuity and it is guaranteed to make payments for the life of the annuitant(s). Life annuities are often structured with a period certain to guarantee return of premium to the owner(s).
Life Annuity with Period Certain
For example, if a client owns a life annuity with a 20 year period certain then the income payment would be guaranteed for at least 20 years should the owner pass away prematurely. The remaining payments would transfer to the named beneficiary on the policy. Insurance carriers will usually allow for a period certain of up to 50 years. However, the longer the selected period certain, the smaller the monthly payments will be. A life annuity with no period certain will provide the largest monthly payment to the owner. This type of account is best for someone who needs maximum monthly income, but who is not concerned with providing benefits to a beneficiary.
Income Payments Adjusted for Inflation
Younger annuity owners may desire a payment that can be adjusted for inflation on a yearly basis. Most common are accounts that will increase monthly payments by a compounded rate of 3% or 5% year over year. Monthly payments in the first few years will be smaller than an income annuity without an inflation rider, but will increase substantially over time. Income payments compounded at a desired percent take into account the time value of money. A $1000 monthly payment today will not buy $1000 worth of goods and services 20 years from now. Inflation protection allows consumers peace of mind as they grow older, especially if they have invested in a life annuity. In summary, purchasing an annuity designed to take care of future need will take careful consideration. Shopping for the best rates is just as important as selecting the annuity term and inflation rider.
What is Guaranteed Lifetime Income?
Guaranteed Lifetime Income as discussed in YourOwnRetirement.com refers to Annuities designed to make guaranteed lifetime payments to you the purchaser, offered by highly rated insurance companies. You are assured of your security and peace of mind. An annuity is a contract under which you make a lump-sum payment or a series of payments and in return an organization or company will agree to pay to you a stream or series of payments beginning immediately or at some time in the future. The term “annuity” typically relates to a contract between you and a life insurance company, but a charity or a trust can take the place of the insurance company.
Can my fixed annuity payments keep pace with inflation?
Lifetime income with a fixed payment stream are level payments and do not automatically increase with the rising cost of living. However, you can elect to have a Cost of Living Adjustment or COLA option. With the COLA option your payments adjust annually based on either a fixed percentage amount (typically your choices are between 1% and 5%) or an inflation adjustments option, which adjusts the payments annually to reflect changes in the non-seasonally adjusted Consumer Price Index – U (“CPI”) as published by the Bureau of Labor Statistics.
For more information regarding Guaranteed Lifetime Income please visit us at http://www.YourOwnRetirement.com
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