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Subject:  Re: Life Annuity Date:  5/19/2013  4:51 PM
Author:  pauleckler Number:  72252 of 88435

The best way to do this is to come up with an overall plan. Sit down and figure out what your living expenses are likely to be in retirement. Then consider your income from pensions and Social Security, etc.

Are your basic living expenses covered? Or do you need extra income from your investments or IRAs?

If your income is short, then there are various ways to meet your needs. If you are over 59-1/2, penalty free (but taxable) distributions from your IRA is one way. But you may also want to review your expenses and see if some will now be optional in retirement or not really worth the cost.

If your living expenses are covered by pension and SS payments, then your main concern is funds for options like say travel or for the unexpected. If you are like most of us, you may be retired for over 30 years. Protection from inflation is a major concern. Investing mostly in equities, usually in mutual funds is often the best way. And most importantly, mutual funds do not tie up your money. If your needs change or your investment strategy changes, you can easily move your funds as appropriate. Annuities are often expensive, and surrender fees make it costly to move your funds.

Immediate fixed annuities can have a place in a typical retirement plan. Usually an insurance company guarantees you a fixed payment often monthly or quarterly for a specified period. They can be for life or for a specific term. You can get coverage for your spouse too. And to guard against your early death, they can be set to pay a minimum number of payments--to your heirs if you don't survive that long.

But generally, you pay the money to the insurance company and when the annuity expires, you or your heirs get nothing back. It's nice peace of mind insurance if you are uncomfortable about investing. But they are not for everyone. A mutual fund can do as well or better and still leave a nice inheritance for your heirs.

Note that interest rates determine the price of an annuity. Low interest rates make them costly right now. So now is not a particularly good time to buy one. I would wait if you can. But this does depend on your circumstances. You will have to decide.

You said life annuity. Most of them pay for the life of you and or your spouse. You can also get one that will pay for say 10 yrs, and let your other funds grow and then buy another one later (when hopefully interest rates will be higher and you will get more for your money). You can also buy a larger one later to provide more income ideally with profits from your other investments.

These are all immediate annuities. There are also variable annuities, where you pay in for a while, invest the funds in mutual fund like investment choices and then annuitize for monthly payments later. These tend to be expensive and highly profitable for the salesman. Regardless of the sales pitch, avoid them if you can. There are better ways to invest your funds.

Ask away if any of this requires explaining.
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