28 September 2012 0 Comments

A New Approach To Immediate Annuities

In my Aug. 2, 2012 entry I described an Immediate Annuity as a single premium policy that guarantees lifetime income with the first income payment usually starting one to twelve months following the issue date of the policy.  There has been no way for a person to enter into a contract to defer income to a later date or that would allow additional premium payments to enhance future income—until now.

Now, there is such a policy.  This policy allows the annuitant/owner to defer income for anywhere from  two to forty years and additional premium is permissible up to thirteen months prior to commencement of income.  The typical array of lifetime income options is available and there is limited ability to change the date for income to start after the policy has been issued.  If the annuitant dies prior to the income commencement date, the death benefit is return of the premium paid, unless the “Life Only” option is elected, in which case there is no death benefit.  The policy is available for single or joint annuitants.

The appeal of this contract will be for pre-retirement planning.  Take the case of a male, age 55 who has been investing for his retirement at age 65.  He is interested in safety and maximum income at retirement age.  If he deposited $100,000 in a Deferred Annuity today he could get a policy that guarantees 2.6% for ten years, growing to $129,262 at age 65.  Based on Immediate Annuity rates available today, this would provide monthly income at age 65 of $654 guaranteed for life with the Installment Refund option.  Instead, he purchases this new contract with the $100,000.  At age 65 he will be guaranteed $760 per month for life with Installment Refund.  That’s a 16% increase in guaranteed lifetime income!

The downsides on this policy are lack of liquidity (just like other Immediate Annuities) and the potential that interest rates could go up in the next ten years producing a better return  than the Deferred Annuity and higher Immediate Annuity rates.  But, the 16% advantage would be hard to overcome with a totally safe investment.  Oh yes, did I mention that this policy is issued by an insurance company with a 100% Comdex rating?

Whether you are a consumer or an agent and would like more information on this, or other annuities, call my source: Mike Geringer at 818-354-3009.

Coming up,,,I’m returning to a topic I touched on in an earlier blog, but because of the number of inquiries we are getting from about-to-retire pensioners, I’m returning to it:  PENSION MAXIMIZATION—MAGIC OR MYTH?

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