Expert advice on choosing lifetime income annuity program

Do determine how many people will receive lifetime income

Figure out if you want the income stream to cover one or two lives, such as a spouse. Lifetime Income Annuities can be set up for single life or joint life. If the lifetime income stream is set up for 2 lives, the payment will be based primarily on the younger of the two annuitants.

Do consider adding a COLA Rider

Decide if you want to add a COLA (Cost of Living Adjustment) Rider to the Lifetime Income Annuity contract for an annual guaranteed percentage increase to your lifetime income stream. A COLA can be added to your contract that guarantees an annual increase in your lifetime income stream that locks in every year. The highest current contractual COLA is 6.5% annually. It is important to understand that when you attach a COLA to the annuity contract, the carrier will lower the initial payout compared to the same annuity without a COLA.

Do quote as many carriers as possible

Find an agent or advisor that can shop the quote with more than 25 different carriers. There are over 50 carriers that are competitive in offering Lifetime Income Annuities. You need to find an agent or advisor that is independent, and can quote as many carriers as possible.

Do only quote A-rated or better carriers

There is no reason to buy an annuity from a sub par company. Only look at quotes from “A” rated or better companies. Remember, this is a contract between you and the insurance carrier, and they are the ones that are guaranteeing your lifetime income stream. So it is important to make sure that you choose the right company to “transfer the risk” to.

Do structure your contract to guarantee 100% of the money

Set up the annuity contract either as “Life with Installment Refund” or “Life with Cash Refund”. One of the fallacies/untruths I run across when discussing Lifetime Income Annuities is that people think the insurance companies keep the money if you die. This is not true! By structuring your Lifetime Income Annuity “Life with Installment Refund” or “Life with Cash Refund”, you are guaranteed that 100% of the money will go to you or your listed beneficiaries.

Do not worry about the Return on Investment (ROI)

You shouldn’t worry about Return on Investment (ROI) because it can’t be calculated until you die, so that shouldn’t be the focus. Lifetime Income Annuities (aka: Single Premium Immediate Annuities) are a combination of return of principal and interest. There is no way to calculate ROI until you pass away. At that time, I can give you the exact ROI %. Until the time of your passing, this Lifetime Income Annuity strategy is a pure “transfer of risk.” In other words, the issuing carrier will pay you for as long as you live — regardless of how long you live.

Do not choose based on only a few given quotes

Do not allow your agent or advisor to quote only one, or a handful of companies. If your friend/agent/advisor works for one company, then you shouldn’t use that person as a Lifetime Income Annuity source. There are over 50 companies that can provide you a quote, and you should look at quotes from as many as possible.

Do not feel obligated to lock into today’s interest rates

If you can afford to ladder your income stream, then you don’t have to lock in today’s interest rates with the money you have allocated for lifetime income. Because a Lifetime Income Annuity (aka: Single Premium Immediate Annuity) payment is based primarily on the 10 Year Treasury percentage, you might not want to lock up all of your money at these current low interest rate levels. A better idea might be to “ladder” your lifetime income stream by purchasing a Lifetime Income Annuity on an annual basis. You are probably familiar with laddering bonds or CDs. In this low interest rate environment, it might be prudent to ladder your lifetime income. Even if rates don’t move, your payout will be higher.

Do not plan on a liquid investment

The money allocated to this type of income strategy should be used with funds that you will not need to access in a lump sum format. It is important not to allocate money to Lifetime Income Annuity that you need to remain liquid and accessible. With this type of annuity (Single Premium Immediate Annuity), once you turn the income stream on, you can’t turn it off. There is no liquidity with this type of annuity.

Do not put annuities into an IRA if you want tax advantages

The tax advantages of a Lifetime Income Annuity (aka: Single Premium Immediate Annuity) do not apply when this strategy is used within a traditional IRA. Lifetime Income Annuities can be used within both an IRA or in a non-IRA account. If this annuity strategy is implemented within a traditional IRA, the tax advantages are not applicable as they would be if the Lifetime Income Annuity was used in a non-IRA account.