retirement

Rescue retirement with annuity

On the variable annuity route, consider products that come with bonuses or guarantees such as living benefit riders, says Bayne Northern, a vice president with Penn Mutual Life Insurance. Variable annuities that include bonuses "may actually 'replace' what you have just lost in the market," Northern adds.

But guarantees as part of a variable annuity come at an added expense, cautions Peter Miralles, president of Atlanta Wealth Consultants. "Generally the guarantees are diminished when withdrawals are made while the market value is down."

Shaun Golden of Golden Wealth Management in Riverhead, New York, recommends living benefit riders, which can be found in variable annuity contracts. He says they offer a "lifetime of guaranteed income regardless of financial market conditions." Golden, who has positioned a portion of his clients' assets into these types of annuities, says he's getting expressions of appreciation for protecting "the income which we count on each month."

Sollmann says variable annuities with an income rider are worth considering for those who are still saving for retirement and who want the potential to grow assets along with income protection, even in down markets.

For those concerned about fees, Laurence Greenberg, president of Jefferson National Life Insurance Co., suggests a low-cost, no-load variable annuity.

More annuity choices

  1. Immediate (or income) annuity
  2. Deferred annuity
  3. Lifetime income annuity
  4. Inflation-adjusted annuity

1. Immediate (or income) annuity. Available as fixed, variable or a combination of both, the immediate annuity is designed to produce a stream of income soon after its purchase. This option would generally appeal to someone age 60 or older. Warschauer believes fixed immediate annuities are what near-retirees and retirees should consider first.

2. Deferred annuity. You give the company a large sum upfront or make monthly payments until you reach retirement age. The money grows tax-free until you retire. This works best for someone who has a big chunk of change to put down and at least 20 years for the money to grow tax-free before setting up a schedule of lifetime payments that would start after retirement.

3. Lifetime income annuity. This product provides income for the remaining life of a person (or people, if a two-life annuity is purchased), according to the Insurance Information Institute. The amount paid depends on age, the amount paid into the annuity, and (if it's a fixed annuity) an interest rate set by the company. David F. Babbel, professor emeritus of insurance at the University of Pennsylvania's Wharton School, says lifetime income annuities should play a substantial role -- 40 to 80 percent of retirement assets -- in the retirement arrangements of most people.

4. Inflation-adjusted annuity. This feature is added to lifetime income annuities to protect purchasing power, regardless of whether inflation or deflation occurs, Babbel says, adding that only a handful of insurers offer this feature. He also suggests seeking an annuity with a preset annual rate of increase, such as 1 to 6 percent per year. As an alternative to the inflation-adjusted annuity, he suggests having a fixed immediate annuity with a deferred, flexible premium annuity as a supplement. The flexible premium annuity can be activated as needed, "and if inflation really takes off, you can use the flexible premium feature to increase the size of your annuity," he says.

First seek stability

A final word of wisdom: Be careful whom you do business with. "An insurance company can go out of business," points out Warschauer. "There is no guarantee that if a company goes out of business, they won't take the variable annuity or fixed annuity holders with them."

That's why it's worth taking the time to do some research into the soundness of the company issuing the annuity. Check financial ratings provided by A.M. Best, Moody's and Standard & Poor's, among others.

If you're worried about financial stability, Warschauer points out that ordinarily annuity issuers purchase each other's customers when a company goes under. "They will buy that package of annuities and take them over. But there have been cases where the annuities have simply failed."

Conclusion: Annuities can be a rescue vehicle for many retirees -- just proceed with caution.

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