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Guaranteed Income for life - What a Concept!

With all the news about the Health Care Debate and our current economic situation, it is hard to believe that prominent writer Ron Lieber of the New York Times has written an article advocating the benefits of single premium immediate annuities. Okay, okay, okay, don’t click away from my article yet! I know that this is dry, boring, confusing annuity-speak and I try to use as little of it as possible whenever communicating with the public. However, the very fact that an esteemed New York Times journalist would actually devote a column to something like this may give you a sense of how unusual this situation really is – and why it just might make sense for you to read on a little further...

Mr. Lieber wrote his article in response to a report published by the White House’s “Middle Class Task Force”. One of the first points his article makes is that simply running out of money is one of the biggest risks of retirement. He then correctly points out that a single premium immediate annuity can and will help guarantee that a person never outlives their money. In fact, that is specifically what they are designed to do. He states that an annuity “allows you to buy the pension that your employer probably stopped offering and it can help pick up where social security leaves off”.

Mr. Lieber goes on to say that the White House made it clear that they would like to promote annuities and other forms of guaranteed lifetime income as a basis for a secure retirement. The key thing here is that there are not many other products that can deliver a regular check for life, let alone do it as simply, safely, and reliably as a single premium immediate annuity. Yet, even with this knowledge, for some strange reason even those employees who have access to this option upon retirement often mistakenly steer clear. A 2009 Hewitt Associates study reported that just one percent of eligible workers actually bought a single premium immediate annuity as a part of their retirement plan.

What’s going on? What might these soon-to-be retirees be afraid of? One big knock on a single premium immediate annuity is the erroneous impression that when you die “the annuity company keeps the rest of your money”. The fear is that if a 65-year-old-man invests $ 100,000 into a single premium immediate annuity that pays him $ 725 per month for life and he dies at age 67, his heirs would get nothing while he only collected $17,400. But this pratfall is easily prevented by including a minimum number of guaranteed years of payment no matter how long the man lives. A properly designed annuity will repay all of the initial deposit while still guaranteeing that he never outlives his monthly benefits.

Another fear is a fixed stream of payments may not keep pace with inflation. We agree that attention to “growth” is an important consideration even for retirees. Yet once again, you can address this issue through thoughtful planning. Low and behold, lifetime annuities exist that permit you to do a little of both: establish a portion on a fixed rate basis and a portion to growth.

Perhaps the greatest hurdle to clear in the “wealth illusion”. This is the idea that the funds in a person’s 401(k) account generally constitute the largest dollar balance that prospective retiree ever sees listed in their name and they enjoy simply seeing that balance sitting there every month on their statement.

It feels scary to convert that single large number into a stream of smaller numbers, - even if those smaller numbers add up to much more than the lump over time. But compare that temporary satisfaction to the gnawing terror of watching one’s balance slowly…creep…down as they have to begin spending principal in retirement. Now it’s not so fun to look at that balance, especially when they no longer have an income with which to replenish it.

Here it took a White House Task Force to come up with what we in the structured settlement business already know: a single premium immediate annuity has proven to be an incredibly reliable method of establishing a secure stream of income. Oh, and a funny thing about those wonderful defined benefit retirement plans of long ago: when you notified your company that you had decided to retire, guess what they did to ensure that lifetime income they had promised you? That’s right, they used to buy single premium annuities. Stick around long enough and everything comes full circle.

I for one am happy to see that the White House, the New York Times, and others have recognized the value of the benefits to be found in a single premium immediate annuity, whether for retirement planning or other purposes. Yet what they’re endorsing can’t hold a candle to what we can do for injured claimants. We can provide all the safety, security, and lifetime income they advocate, but we can also go them one better: with our structured settlement plans every dime is available to meet expenses. No one pays any income taxes on these monthly checks, ever.

Want to help a claimant set up the kind of world class retirement plan that neither you nor I qualify for? Call Frank C. Kilcoyne, CSSC at 800-544-5533 I am here to help.

1 Lieber, Ron. “Your Money - The Unloved annuity gets a hug from Obama” The New York Times, published January 29, 2010. Available online January 30, 2010 from http://www.nytimes.com/2010/01/30/your-money/annuities /30money.html.
2 Ibid