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Some people prefer to manage their own savings, deciding in effect to “pay themselves” through their retirement by withdrawing their money as they need it. Even with a diversified portfolio of stocks, bonds, and CDs, there are risks—including market volatility and the chance that you may outlive your money.
Income now – Immediate Annuity
To better manage these risks, you may want to consider purchasing an Immediate Income Annuity. An Immediate Income Annuity provides a 100% guarantee that your retirement income will last as long as you live, no matter how long that is and no matter how the financial markets perform.
In addition to the 100% guarantee, Immediate Income Annuities typically offer higher payout rates than would be possible with periodic withdrawals. For example, if you are a 65-year old female and are planning on spending down your nest egg, you could withdraw approximately 4% a year if you wanted your portfolio to last around 30 years—and there’s only about a 90% probability that your nest egg will last that long. While payout rates vary based on age, gender, interest rates, and other factors, the Immediate Income Annuity typically offers a 5% to 6% payout rate based on payments that include an annual 3% inflation adjustment—a payout rate that is 25%–50% higher than the 4% you would receive spending down your nest egg.
Income Later – Deferred Annuity with Income Rider
For future income needs, one would purchase a deferred annuity with an Income Rider. What is an Income Rider? It is an optional benefit that can be attached to an annuity for an additional annual fee, and will provide a lifetime income stream that you can turn on in the future.
Income riders have turned out to be one of, if not the, most well-liked benefits ever to be supplemented with fixed deferred annuities. Associates of the National Association for Fixed Annuities (NAFA) account that over half of the people who buy fixed deferred annuities will additionally choose to insert an income rider. Income riders are recognized as surefire lifetime withdrawal benefits or definite lifetime income benefits.
With income riders, the income value is totally disconnected from the accumulation value. It usually matures at a fixed rate of interest, and then when the annuitant decides to start receiving lifetime dispersal, a disbursement factor is used towards the income value in order to determine the promised yearly withdrawal. If the accumulation value is superior to the income value at the time that the policyholder chooses to remove the income, then the accumulation value is used in the payout computation in its place. At the time that the quantity of guaranteed withdrawal is designed, the annuitant may take out that quantity from the policy annually, for life.