[vc_row][vc_column width=”2/3″ el_class=”section section1″][vc_column_text]With the scarily rising trend of pensions becoming less and less available for private-sector workers, it may be beneficial to set up your own through an immediate annuity.
For this type of annuity, you start by paying a lump sum to an insurer. In return, they will pay you a monthly income, normally, until your death.
Just like most things, you want to think about the negatives before you think about starting an annuity. One major con is that once you pay them the lump-sum, it is very rare to be able to have that returned to you. However, there are a few insurers that let you withdraw once from your account for specific emergencies.
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Another factor you may want to consider is how the interest rates will affect your payments. Your age and interest rates determine how much you receive from the immediate annuity plan. The payments are lower when the interest rates are low.
10-year Treasuries are normally linked to the payments, and the rate is at a record low. Currently, getting an immediate annuity right now may not be the best time due to this factor.
If you can, waiting will be beneficial because you will receive larger payments when you are older, and more than likely, the interest rates will be much higher than what they are at this time.
For those that are concerned that the interest rates can even fall lower than where they are now, or you need to receive a bit of assured income as soon as possible, an annuity ladder may be the best course of action. You will be investing your money into an immediate annuity throughout a few years.
For instance, you want to put in $500,000 into an immediate annuity; you would purchase a plan for $100,000 the first year and another $100,000 every two years until you have invested all the $500.000. If the rates are higher, you will be able to take advantage of those rates. If the rates are even lower than they are currently, you will have payouts paying you at a higher rate from the previous purchases.
Something else you can do is invest in a deferred annuity instead. This also goes by the name of a longevity annuity, which provides a guaranteed income once you hit a certain age that is agreed upon between you and the insurance company.
With a deferred annuity, you can contribute a maximum of 25 percent or $130,000 (whatever may be less) of your 401(k) or IRA into an annuity that is called a qualified longevity annuity. This allows you to not have to take an RMD (required minimum distribution) once you are 70.5 years of age. However, you will need to begin receiving payments from this annuity when you are 85 years old. Keep in mind that these payments are liable to income tax.
A possible downside to deferred annuity payments is that they are linked to interest rates as well. If you see that rates may rise in the future, you may wish to hold off until then.[/vc_column_text][/vc_column][vc_column width=”1/3″][vc_single_image image=”37973″ img_size=”292×285″ style=”vc_box_shadow”][/vc_column][/vc_row]
