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I am 65, retired on a pension and getting social security with both having a COLA but my wife and I still need some more income to cover our way of life without continually dipping into our savings. Other than losing the use of funds (I have no one besides my wife I wish to leave it to anyway), what is the downside to an immediate annuity that currently pays about 4.8% on the money with only about half of that taxable (since they are really giving back our own money)?
Anyone have any better ideas for a guaranteed cash flow?
Payouts from annuities are low now because interest rates are low. Consequently, some advisors suggest buying these things in stages, when practical. For example, if you are going to put $300,000 into annuities, buy 100K at age 65, 100K at age 70, and 100K at age 75. Also, you may want to buy from three different providers, to minimize the consequences of default (although this does maximize the potential for default ). Interest rates may or may not go up as time passes, but in any case the later annuities should pay more because of your increased age at the time of purchase.
The 4.8 seems low, i assume it passes to your wife but anything else like inflation adjusting or a guaranteed death benefit for x amount of years?
Yes it passes to my wife who is 20 years younger and is good for both our lifetimes, whoever lives longest. Inflation adjusted seems to cost way too much up front, so since my pension and ss has COLA, I figured we could live with none on that. Death benefit for 20 years did not seem to make any difference in the amount we would get, so I might add that if we decide to go that route and add a friend for the death benefit.
First, I agree with Mr. Lee that with his wife being 45 years old, adding a 20 year guarantee should have little impact on the monthly income, since actuarially, the insurance companies expect a 45 year old woman to live more than 43 years. So the "cost" or risk to provide at least 20 years of guaranteed payments is nominal.
I ran an online quote at [URL="http://www.immediateannuity.com"]www.immediateannuity.com[/URL] for a 65 male and 45 female and the average annuity cash flow or so-called payout rate was 4.62%. Since this is the average figure on this site there are companies that offer higher so your 4.80% quote is in line but may not be the highest payout available. I suggest getting a list of comparison quotes from this website.
As far as when to buy the annuity given rates are historically low. While that is true, anyone who has been waiting the past 10 years for rates to improve has been disappointed and missed the boat if they didn't buy at the time they were considering the annuity. Of course, if they invested in bonds as rates fell their portfolio increased in value so in effect they hedged the cost of an annuity issued at lower rates. As Mr. Forbes above said many advisors recommend laddering or spreading out your purchases over time so if rates do blip up for a short while perhaps you will average in to an overall higher rate than if you bought everything at this time.
Final point-- this about diversifying your purchases across several companies just in case the unthinkable happens and a company defaults. It's a rare occurrence but who knows? Best to plan for this possibility ahead of time by spreading your risk across several companies.
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). Interest rates may or may not go up as time passes, but in any case the later annuities should pay more because of your increased age at the time of purchase.
