Retirement Income Products
Retirement income products
Choosing the right immediate annuity

Joint and survivor life annuity. The insurer pays income as long as either the insured or the beneficiary lives. Spouses generally buy annuities this way. The amount received will be less than a life annuity without this rider, and some people find buying a life insurance policy to cover the younger person more economical. You also can decrease the amount of the payments after the first death or limit the length of time during which payments continue for the second person. Either of these changes will increase the payout. The Urban Institute studied why spouses choose single rather than joint-life annuities and found that only 7 percent of men and 3 percent of women prefer single-life annuities in the absence of some compelling reason like imminent death of a spouse or a pending divorce.

Inflation protection. This starts the payout at a lower level, but increases it annually, usually by the government-calculated inflation rate. Inflation protection, Mitchell says, reduces the "money's worth ratio" by about 5 cents on the dollar. Mitchell thinks that given our country's current economic situation, inflation protection makes sense -- "I'm an inflation hawk," she says. Of course, if she's wrong and inflation stays low, this could be a bad bet.

Longevity insurance. Generally, an insurer must begin paying a life annuity within 12 months of its purchase, but longevity insurance delays payment. You purchase the insurance with a single payment, and the date payments begin is deferred often for 20 years or longer. In the meantime, the insurer has the use of your money. If you die before collecting, you lose it. "(Longevity insurance) can be smart retirement planning," says Mitchell, and these kinds of policies are a good bet for people who believe they will live a long time, based on longevity of family members.

Long-term care insurance. Some immediate annuities allow you to use some of the money you've put in an immediate annuity to pay for long-term care if you meet certain criteria. Walsh says this is the one rider that might be worth buying, "particularly if you aren't inclined to buy long-term care insurance otherwise."

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