Kerry Peabody, Long Term Care specialist

“Safe money.” Isn’t that a nice phrase – soothing, even. How many of us are at or near retirement age, and worried about something bad happening to our money? Many of my clients fall into this category. They’ve worked for 35 or 40 years, and now they’re ready to start enjoying everything they’ve worked for. A few of them have pensions, but most just have money. Money in IRAs, investment accounts, 401ks, and 403bs. They don’t know what to do with it, and they’re worried about what happens if the stock market takes another dive, or if they live too long (what a horrible thought, right?) Well, this is where an understanding of annuities is vital. Today, we’ll discuss “immediate” annuities, sometimes referred to as “income annuities.”

You don’t need to have a pension from a big company to have regular, guaranteed income. You can literally buy your own pension by converting cash into an income stream that you cannot outlive. Let me repeat that – an income stream that you cannot outlive. Think about that. A pension is an annuity, pure and simple.

We all know that, unless we have a huge bucket of money out there, one that’s so big that we can live off of just the interest, then eventually that bucket will run out if we’re drawing from the principal for our income. An annuity fixes this, by combining income with insurance. For instance, let’s say that a 65 year old man has $250,000 in savings, but a very low monthly income – maybe just social security. He needs more cash coming in each month. If he takes $100,000 of his savings and buys an immediate annuity, he’ll get a check for $715 a month for the rest of his life, no matter how long he lives, guaranteed. If he makes it to 90 – a very real possibility these days – he’ll have gotten $171,600 back from his investment. Not a bad deal.

What’s the down side? If he steps in front of a snow plow tomorrow, the payments stop. But, we can fix that, too. He could choose “Life with a period certain.” This means that he’ll get a check for as long as he lives, no matter how long, or at least a certain number of years. So, if he’s really concerned with dying before he gets all of his money back, the remaining payments would go to his beneficiary – a child, or his sister perhaps. That same 70 year old could choose “life, with a 15 year period certain.” If he chooses this, the monthly check would be $620, for as long as he lives, or at least 15 years. So, even if he steps in front of that plow, the annuity’s guaranteed to pay back at least $111,600 – $620 per month for 15 years.

(I’ve used a current product and rates for the examples here. Actual rates would vary depending upon when you buy the annuity, and what company you choose, so work with an agent who can compare several good, solid companies for you.)

So, if you don’t have a pension, you can go buy one. And, there’s no medical underwriting to worry about. What a great tool!

Next time, we’ll talk about “deferred annuities.” Have a great day!  

Kerry Peabody, Long Term Care specialist