Editor’s note: I want to just kick myself. For some inexplicable reason I’ve never paid much attention to annuities and how they affect my making better investment decisions. Then, I was introduced to Stan -The Annuity Man and immediately asked if he’d write a column for our readers. Stan is not a salesman; he’s a resource and I suggest you check him out below and let me know what you think.
Annuities were originated during the Roman times as the first lifetime pension payments to Roman soldiers and their families for their dutiful service. To this day, most lifetime income annuities are still the only product that is guaranteed to pay you regardless of how long you live. It’s called solving for longevity risk.
A wager between you and the annuity company
When you structure an annuity to pay for your life, you are making a bet with the issuing annuity company. You are betting that you are going to live longer than their life expectancy tables predict. And regardless of how much you outlive your projected mortality, the annuity company is on the hook to pay. That’s the true benefit proposition of a lifetime income annuity.
The older you are, the higher the payment
It’s common sense that the older you are, the shorter your projected life expectancy. The shorter your life expectancy, the higher the initial payout level.
Most people think that when you die during an annuity lifetime income stream, the company always keeps the remaining money. That’s only true if you choose to structure the payments “Life Only.”
Most people choose “Life with Installment Refund” or what I call “Life with Balance Refund” which guarantees a lifetime income stream regardless of how long you live. However, when you pass away, any remaining balance in your annuity account goes in full to the listed beneficiaries of the policy. The company does not keep a penny.
Buying annuity lifetime income is a commoditized decision. In other words, even though you can customize the payout, you need to shop all carriers for the highest contractual guarantees available.
My advice is to look at a minimum of five different company quotes. Take your time, do your research, and make your decision on your terms.
Stan is the most outspoken consumer advocates for annuities. Stan is the most read and most controversial commentator in the country. For more information go to: www.stantheannuityman.com