Dear MarketWatch,
My husband is 70 years old and I am 63 years old. We are both retired and have a combined monthly income of $4,000. We are considering purchasing a $200,000 annuity that would cover both of us, and I would like to know what our monthly payout would be and how long it would take to process this investment before receiving a monthly payment.
We have an appointment with a financial advisor this week. We hope we are moving in the right direction. is it a good investment?
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Annuitant
Dear Annuitant,
I’m glad to hear that you are meeting with a financial advisor who can give you more information about the different types of annuities that are best for you.
Annuities can help you increase your monthly income in retirement. They are not suitable for everyone and have gained a bad reputation in the past due to the sales-driven nature of the insurance industry. That said, the government has made these plans easier for retirement savers to access, and investment companies are close behind, creating investment products that integrate annuities into a retiree’s eventual finances. I wrote about some of these developments in the last “Best New Money Ideas” series.
There are many types of annuities, but two common forms are immediate annuities and deferred annuities. With payout annuities, as the name suggests, you give up a lump sum for a stable, guaranteed income stream. With the latter, you pay, either in a lump sum or over time, for a source of income that will begin at a later date. You’ll need to find annuities with terms that suit you and your husband’s needs and wants, as they can vary.
Be aware that some types of annuities are tied to the stock market. Fixed annuities aren’t one of them: they simply provide you with a stream of income at a specified interest rate, and that’s it. Variable annuities, on the other hand, have an investment component, which can have a higher return (and higher risk). A “middle” option, a fixed index annuity, provides payments with only a portion of the overall payment tied to the market.
Is your money better served elsewhere?
It’s not enough to simply decide that you want an annuity for additional income. Look at how your current retirement income is working for you and whether or not you need more money to pay your monthly bills. Some advisors will advise against an annuity for the simple reason that you are giving up a large sum of money for an income stream that you may not really need, and that money could be better served elsewhere, e.g. a balanced investment portfolio. .
There’s no right answer, so here are some questions: What are your current and future income needs? Do you have any funds other than the $200,000 to fall back on in an emergency? What are the annuity terms regarding survivor benefits when one spouse dies before the other? What type of inflation adjustments does it have? And finally, as with any financial product, consider all tax implications.
If this is your first time speaking with a financial advisor, or even this financial advisor, be sure to review it. A financial planner, such as a Certified Financial Planner, will incorporate an annuity recommendation into your overall finances to ensure it’s best for you, while a salesperson may not be held to the same standards. Ask the advisor how they are paid for their recommendations and ask to see their credentials.
Also research the companies that sell the annuities to make sure they are safe and legitimate. You can look at insurance company ratings to check their overall health and stability. here is a list of companies that rates insurance providers, shared by the Washington State Office of the Insurance Commissioner.
Remember, you don’t have to choose the first annuity or advisor you meet, so don’t hesitate to shop around before making any final decisions. It’s your nest egg, and annuities may (or may not) meet your financial goals and needs, but that doesn’t mean all annuities are the same. Before making a decision, make sure you are both knowledgeable and 100% comfortable with the product.
