PFwise.com
Search
  • Home
  • Blog
  • Tools
  • Know-how
    • Insurance 101
    • Annuity 101
    • College Planning
    • Real Estate
    • Retirement Planning
    • Smart Investment
    • Stock Ideas
    • Tax Planning
  • About Us
  • 中文
  • Resources
    • Personal Finance Reading List
    • Financial Aid Resources
    • Personal Finance Calendar
    • Retirement Planning Calendar
    • ETF list
    • Financial Glossary
  • Newsletters Archive

How to Create Income That Can Last Lifetime - Part B

9/26/2014

0 Comments

 
In Part A, we discussed why do you need lifetime income and fixed lifetime income annuity as a solution.

Now, what is a Fixed Lifetime Income Annuity?

A fixed lifetime income annuity represents a contract with an insurance company whose purpose is to convert part of your retirement savings (an amount you choose) into a predictable lifetime income stream. In return for a lump sum investment, the insurance company guarantees to pay you (or you and your spouse) a set rate of income for life.  You can also have the option of starting your income immediately or sometime in the future.

Having the backing of an insurance company can help mitigate three key retirement risks that, generally, can be very challenging to manage by yourself:
  • Market risk. Regardless of whether the market goes up or down, the insurance company is obligated to provide you with income payments every year.
  • Longevity risk. Rather than trying to figure out how much of your savings you can spend each year before running out of money, the insurance company assumes the responsibility for paying you as long as you live.
  • Inflation risk. By including an annual increase option, you can reduce the risk that inflation will diminish your investments’ purchasing power over time.

The Trade-off
The trade-off with an income annuity is that you must give up control of the portion of the savings you use to purchase one. In return, you don’t have to manage your account to generate income, and you can secure a predictable income that lasts the rest of your life.

What’s more, fixed lifetime income annuities are often able to provide higher income payments than other products, such as bonds, CDs, or money market funds, due to the “longevity bonus” they can provide. While the payments from traditional income solutions are limited to return of principal and interest from an investment, fixed lifetime income annuities also make available the ability to share in the longevity benefits of a “mortality pool.”

Effectively, assets from annuitants with a shorter life span remain in the mortality pool to support the payouts collected by those with a longer life span. 


Put simply, the longer you live, the more money you will receive.

Part C - What are Fixed Income Annuity's Payments and Features?

0 Comments



Leave a Reply.

    Author

    PFwise's goal is to help ordinary people make wise personal finance decisions.

    Archives

    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016
    January 2016
    December 2015
    November 2015
    October 2015
    September 2015
    August 2015
    July 2015
    June 2015
    May 2015
    April 2015
    March 2015
    February 2015
    January 2015
    December 2014
    November 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014
    March 2014
    February 2014
    January 2014
    December 2013
    November 2013
    October 2013
    September 2013
    August 2013
    July 2013
    June 2013
    May 2013

    Categories

    All
    Annuity
    Book Reviews
    College Finance
    Finance In Formula
    Financial Scams
    For Entrepreneurs
    Healthcare
    Insurance
    Investment
    Miscellaneous
    Real Estate
    Retirement
    Savings
    Savings Ideas
    Stock-ideas
    Tax
    Tax-related

    RSS Feed

Copyright © 2013 - 2022 PFWise.com, All Rights Reserved. 
IMPORTANT DISCLOSURES
PFwise.com does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances.

To the extent that any material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
About Us | Contact Us 
中文