Guaranteed lifetime income increases financial security. What many people don’t realize is that today you can set up guaranteed lifetime income to begin in the future.
When retirees have guaranteed lifetime income, they safely spend more money and don’t worry about running out of money during retirement. More details are in the November 2021 episode of my Spotlight Series online seminar.
When you know that you want guaranteed lifetime income in the future but not now, you should consider creating a plan now to establish at least part of that future guaranteed income. There are several ways you can set up future guaranteed lifetime income today, and those strategies are likely to deliver higher income than if you wait to set it up.
The first strategy is simple. Insurers offer deferred income annuities (DIAs), also known as longevity annuities, for just this situation. There’s a type of DIA structured for IRAs known as a qualified longevity annuity contract (QLAC). See our July 2022 issue for details about QLACs.
In a DIA, you deposit money with an insurer today. The insurer guarantees to pay you a fixed income beginning at a point in the future. You select the beginning date.
It has to be at least two years from now and can be as late as age 85. But the insurer tells you today how much those future income payments will be, and it guarantees to make the payments for as long as you live. Another option is an indexed annuity with an income rider.
In an indexed annuity, you deposit money with an insurer. Interest is credited to your account based on the returns of indexes or investments you select from among those offered by the insurer. You won’t receive the full return of the investments.
You’ll receive a stated percentage of the returns. The insurer guarantees the account won’t be worth less than the amount you deposited and might offer a minimum guaranteed return. I’m going to discuss indexed annuities in more detail in an upcoming issue, but those are the basics.
When you select an income rider with an indexed annuity, if you elect to begin regular income payments at a certain age or later, the insurer will guarantee to make a minimum regular payment to last the rest of your life.
The payments might increase if your account does well in the meantime. But if the account does poorly, your guaranteed income payments won’t be less than the stated minimum. The third option is what Stan Haithcock (Stan the Annuity Man) calls MYGA to SPIA.
A MYGA is a multi-year guaranteed annuity. These are like CDs in a tax-deferred annuity. You deposit money with an insurer. The insurer credits interest to your account each year, and you’re told in advance the rate of interest that will be earned by the account each year. You select the term of the MYGA, usually from one to five years. MYGAs are discussed in more detail in the April 2022 issue of Retirement Watch.
After the term of the MYGA is over, you can roll it over into another MYGA to earn interest at the new interest rate. When you’re ready to receive guaranteed lifetime income, you roll the MYGA into a single premium immediate annuity (SPIA).
The SPIA is the classic annuity. You deposit money with an insurer. It guarantees to pay you a fixed amount of income for as long as you live. The payments begin on a date you select within one year after making the deposit. You can modify the classic SPIA by having payments continue for the joint life of you and your spouse.
Another option is to have the guaranteed payments increase each year to give you some inflation protection. You also can have the right to withdraw some additional money in years you need more cash. Another option will pay some money to your beneficiaries if you die before average life expectancy. Each of these options reduces the initial amount of the guaranteed lifetime income.
To find out more about these different annuities and strategies, use the website of Stan Haithcock, also known as Stan the Annuity Man. At www.stantheannuityman.com, there are calculators that let you shop the whole market and find the annuity that’s best for you.
You won’t receive any follow-up telephone calls from insurance agents after you use the calculators, even if you don’t buy an annuity. Another good resource, especially if you’re interested in indexed annuities, is Todd Phillips. of Phillips Financial Services (888-892-1102).
I’ve known Todd for years. He’ll learn about your situation and goals and then research the market of fixed income annuities (FIAs) and other annuities before deciding what to recommend to you.