The popular rise of lifetime income on annuities
The popular rise of lifetime income on annuities
Markets
& Investing
A look inside why more
Americans are turning to lifetime income.
Annuities can provide a
guaranteed lifetime income stream in retirement, no matter how long you live.
They thrive under high interest rate environments and are currently offering
the highest payouts seen in years.
Recent market trends
have led to a surge in their popularity. The cause – which resulted in record
total U.S. retail annuity sales of $385.4 billion in 2023 and $106.7 billion in
the first quarter of 2024 – can be traced back to the COVID-19 pandemic. Just
before that, the market had reached its all-time peak. Then the after-effects
brought about record-high inflation, rumors of impending recession and
unprecedented market volatility.
For many the thought of
losing a substantial portion of their retirement savings made them willing to
trade the possibility of gains for the promise of safety. And with the Fed
raising interest rates to the highest levels in 15 years, the stage was set for
products like annuities. And take center stage they did.
Guaranteed income for life
The word “guarantee”
doesn’t come up very often in conversations about investing and retirement
planning. But in the case of annuities, that’s exactly what you can get:
guaranteed income, at a guaranteed amount for a guaranteed duration, as long as
you live.
When you purchase an
annuity, you enter into a contract with the insurance company. There’s no
health screening required to buy an annuity, just a simple calculation an
actuary performs to determine the amount you’ll be paid based on your life
expectancy, the date you choose to start taking payments, the amount you put in
and the interest rate environment. The higher interest rates, the more you can
receive.
Lifetime income through annuities
Fixed income annuities
With an immediate income
annuity, you put in a lump sum and earn a fixed payment for the rest of your
life. You’ll receive income within 12 months of your purchase—one month after
you buy your annuity for monthly payments. While monthly income payments are
most common, you can also choose to receive quarterly, semiannual or annual
payouts. Your payment amount is determined by your life expectancy from the
date of purchase and the amount you put in. If you select an annuity with a
“cash refund” death benefit and die before your income payments equal the full
amount of your annuity purchase price, your beneficiary will receive the
difference. And should you outlive your initial investment, you‘ll continue
receiving payments. A great option for retirees looking for a guaranteed income
stream, an immediate income annuity gives you a steady monthly check in
retirement, just like Social Security.
If you’ve got some time
before you retire, a deferred income annuity gives you the opportunity to grow
your money tax-deferred for a period of time and unlike immediate annuities,
you can convert this money into guaranteed income payments at a later date.
Typically, the longer you delay your start date the higher your income payments
will be.
Whether you invest in an
immediate or deferred annuity, both options provide the advantage of a
guaranteed income stream throughout retirement. However, this benefit does come
with the trade-off of having limited control over these assets. It’s also worth
noting that once your policy is in place and the income start date is set,
you’ll have little flexibility to change this date, if possible.
Guaranteed living withdrawal benefit riders
In addition to income
annuities, guaranteed living withdrawal benefit riders added to other types of
annuities have become an increasingly popular option. They provide more control
over the underlying assets while still providing an income payment for life.
The rider can be added
to a variety of deferred annuities like variable, structured, indexed or fixed
– each having its own set of risks and rewards. It offers you the flexibility
to invest your annuity’s underlying cash value, providing options to protect
yourself from market downturns. No matter what happens to your invested
balance, your income remains guaranteed. The rider gives you the choice to
either start receiving income immediately or defer it until a later date.
Unlike immediate or deferred income annuities, you’re not required to make this
choice in advance. You simply let the insurance company know when you’re ready.
In exchange for this flexibility, income payments may be slightly lower.
Deciding for yourself
Annuities can be a great
option for those approaching or in retirement who are looking for a guaranteed
source of income that won’t falter no matter what happens in the market. The
healthier you are and the longer you live, the more value they’ll bring. No one
can predict the future of the market for any investment vehicle. But with an
annuity, you can predict – and guarantee – how much income you’ll get for the
rest of your life.
Keep in mind that opting
for a lifetime income option with an insurance company is an important decision
that will last the rest of your life, so choosing the right partner is a key
part of the process. The income guarantees offered by annuities are backed by
the company’s claims paying ability, so selecting a highly rated insurance
company is a great way to protect your investment.
Pendle Hill
Advisors is proud to contribute to the Montgomery County News with our weekly
curated financial news and topics. If you have any questions about the markets,
your financial plan, or anything, please feel free to reach out to our office
for a no cost initial consultation.
Kent Pendleton, AAMS®
Financial Advisor, RJFS
Pendle Hill Advisors LLC
14375 Liberty St, Ste 109 |
Montgomery, TX 77356
T 936-297-8267
Kent.Pendleton@raymondjames.com | www.raymondjames.com/pendlehilladvisors
Material
created by Raymond James for use by its advisors. Securities
offered through Raymond James Financial Services, Inc. Member FINRA/SIPC.
Investment advisory services are offered through Raymond James Financial
Services Advisors, Inc. Pendle Hill Advisors is not registered broker dealers
and is independent of Raymond James Financial Services.
Sources: annuityfyi.com;
brighthousefinancial.com; immediateannuities.com; limra.com; macrotrends.net;
money.com; newyorklife.com
Annuities are long-term,
tax-deferred investments intended for retirement purposes. Annuity guarantees
are subject to the claims-paying ability of the issuing insurance company. Any
withdrawals may be subject to income taxes, and prior to age 59 1/2 a 10%
federal penalty tax and state penalty taxes may apply to the taxable amount.
Withdrawals from annuities will affect both the cash value and the death
benefit.
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