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What About an Income Annuity?
Income annuities are contracts with an insurance company where you exchange a
lump sum of money for a guaranteed monthly or annual income for life. Does this
sound familiar? It should because many annuities are similar to pensions. Guaranteed
Lifetime Income Annuities offer a guaranteed monthly income for your life and
(if you choose) the life of your spouse. One benefit that some Lifetime Income
Annuities have is the ability to pay a death benefit or to continue monthly payments
for a specified period once you and your spouse pass away. With most pensions,
once both spouses pass away there is no death benefit and the monthly payments
cease. Hypothetically, if you retire today and you and your spouse pass away in a
car accident tomorrow the pension is gone. The death benefit or "period certain"
features that many annuities offer protect against this risk.
Additionally, even if you determine that a monthly income is more your style than
a lump sum payment from your pension, you may want to take a look at income
annuities. On many occasions, I have reviewed pension payment options with
clients where rolling a lump-sum pension payment to an annuity produced more
guaranteed monthly income than their pension was offering. This is not always
the case and not all insurance companies or annuities are created equal. It is
important to thoroughly review the financial status of the insurance company you are
considering buying an annuity through and the features/guarantees of that annuity. A
good financial planner can be very helpful in this process.
CHAPTER 4
PENSION PLANNING
"the more time you have to let your money grow before you need
to access it, the more risk you can take."
