The single biggest fear of every retired person is running out of money during retirement. Even with the best planning, there is that nagging fear that the money could run out before you do.
The stock market – the chosen vehicle for funding most retirement plans – has offered up enough surprises, and losses, in the past 10 years that many folks are looking for an alternative with more security and a guarantee, if possible.
MarketWatch reported recently that this need for more income security is making a very old insurance product very popular once again – the single premium income annuity (SPIA).
A 70-year-old man, in good health, can purchase a life-only SPIA for $1 million that will pay him a guaranteed $80,000 per year for life, but only for his life. Once he passes there is no money due to his estate.
That part leaves a bad taste in the mouths of many investors, but the longer life expectancies we enjoy today is where this option starts to make sense.
The current life expectancy of a 70-year-old man today is 85. If you do the math, at $80,000 a year he would get 2.5 years more income from the life-only SPIA than he could have if he just withdrew $80,000 a year from his $1 million cash pile.
But the biggest benefit of a life-only annuity isn’t that you can receive more than you pay in. It is the sense of security knowing that not all of your income is dependent on the stock market’s fluctuations.
As with all insurance products, there are a hundred variations on this option, and they can be set up to provide for a surviving spouse or dependent, as well.
And, obviously, this example of $1 million is a lot for most folks, but even a small portion of your retirement money in this type of vehicle can give you a great deal more income security than most retirees have now.
The key is to pick a good insurance company. This whole thing is predicated on the insurance company’s ability to meet their obligations. So go with a known company with all the right numbers behind them.
Actually, a life insurance company with a high rating is probably more secure than most banks, and certainly more liquid than the good ole U.S. of A.
A single premium income annuity… life only.
It isn’t the only retirement solution, but it is this week’s Two-Minute Retirement Solution.
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