

Ryan: Annuity is designed to guarantee income for life

11:14 PM, Jan. 24, 2014  |  Comments
  • Filed Under

In some recent articles I have written much about the use of life annuities and how the federal government and parts of the private sector recognize the benefit to society for retirement accumulations to be systematically distributed during retirement as an annuity payout. The advantage of the annuity in this regard is that it is usually designed to guarantee an income for life rather than just paying a selected amount until the money runs out.

Only life insurance companies can issue life annuities. They can guarantee income for life by pooling large groups of people together and relying on actuaries to give them accurate average life expectancy information.

When they guarantee a lifetime income to someone, they do not know how long that person will live. But they do know that some in the large pool of people will live to life expectancy, some will live longer and some will live shorter. So, they will save money on those who die short and lose money on those who die long. But it should all average out to the life expectancy projected by the actuaries. If they are off the mark, their huge reserves will usually bail them out.

I recently heard a so-called expert on a cable news show say that annuities are a big risk because a person might buy one for lifetime income and then die very quickly. In that case, he said, the lion's share of what was paid for the annuity would be wasted.

It is possible to buy a guaranteed lifetime income and then die soon thereafter. But most advisers would not recommend buying just a guaranteed lifetime income without having the buyer include a death benefit payable in case the Grim Reaper does come a-calling soon.

It is possible with most annuities to include a second person so that the benefit is payable so long as either person is alive. Or one can add a guarantee to a lifetime-income guarantee that, if the person receiving the benefit dies within the first 10 years of payments, the payments will continue to a named beneficiary for the balance of the first 10 years. That guaranteed period could be for 15 years, 20 and sometimes even 30 years. Often, the beneficiary entitled to such a death benefit payout over a period of years can opt for a single, lump-sum settlement instead.

Or the guarantee could be for as long as either of two people lives but be guaranteed to last at least 10, 15 or 20 years even if both are gone sooner.

Understandingly, the greater the guarantee that is tacked onto the basic lifetime income, the more expensive the annuity will be. If a person buys an annuity with a single premium, the extra charge caused by any extra guarantee will then be reflected in the amount of income that the annuity will pay. Of course, the buyer can choose to pay more for that guarantee in order to maintain the level of the annuity's payout. ■

Buy & Sell



  1. Mobile Site
  2. Mobile App
  3. Reds Baseball App
  4. Bengals Football App
  5. Things to Do App

Real Deals
