Insuring for Retirement: Lifetime Annuities

Although none of us want to think about getting older, it is important to plan appropriately for our retirement years. This is not as easy a task as it sounds. All of us are living longer, and of course, this is a good thing. However, life expectancy increases can also mean that there is a real possibility of running out of funds during ones retirement years. The problem is made worse if the retiree is unable to generate more income.

The average life expectancy in the United States is 77 years. With the increases in the quality of health care and with the education and emphasis on healthy living, a large portion of those reading this article will live into their 80's, 90's, or even 100's. This means that even if a person retires at the normal retirement age of 65 and does not retire earlier, they could be required to make their savings stretch for 30 years.

Thirty years is a long time for a retirement savings to stretch. The situation is made worse by the inflation that will come into affect over that time period. One option for a person faced with wondering how to plan for their retirement income is a lifetime annuity.

A lifetime annuity is an investment product that can be purchased with a lump sum or with premiums made over a period of time which will then allow the holder to receive income for the rest of his or her life. These products are becoming increasing more popular to insure against the risk of exceeding life expectancy.

Lifetime annuities can come in the form of fixed annuities, variable annuities, or index annuities. Fixed annuities always pay out the same rate of interest. A variable annuity, as the name implies, has a varied pay out depending on how the investments in the sub-accounts of annuity perform. Variable annuities generally have more risk associated with them than fixed annuities. However, the advantage of a variable annuity is also that the pay out can be higher than a fixed annuity. An index annuity's performance is based on a market index, such as the S&P 500.

One of the benefits of a lifetime annuity is that it will continue to make payments even if the annuity owner outlives the time when the premiums have already been paid back to him. In other words, the holder could receive more money than was actually paid into the annuity.

The opposite is also true. Unless a "life income with lump sum refund" option or similar option is selected, all of the premium money may not be paid back in the event of the policy holder's death. The "life income with lump sum refund" means that the beneficiaries will receive the remaining value of the policy minus the payments already received by the original holder.

There is also an option to invest in a joint lifetime annuity. This means that a second annuitant will receive the payments even if the main annuitant dies first.

Retirement can be an exciting time. It is time when a person can relax and enjoy the activities that they have been putting off during their working life. It does not need to be a scary time that is filled with worry about income and savings. A lifetime annuity can be just the right option for those wanting a guaranteed income stream for life.