Estate Planning and Beyond
When a client comes to me for a typical estate plan, it almost inevitably ends up being anything but typical. Each client has their own lists of wants – a retirement time-line, vacation plans, medical issues and other financial needs. While I leave the financial planning to the professionals (I am happy to provide references for an excellent financial planner), I am always looking for opportunities for my clients to reach their financial goals ASAP. Below, I discuss annuities as one option and I promise to post on more options that could help you in the future.
A fixed immediate annuity is a contract with an insurance company where a policyholder invests a lump sum in return for guaranteed income, usually monthly, for as long as they live. If the policy holder dies, the insurance company keeps the balance of the policy. You could make arrangements for your heirs to get the proceeds instead, in exchange for a lower monthly amount.
Some benefits of immediate annuities, as discussed in the Financial Advisor Magazine August 2010 issue, are:
The policyholder only pays taxes on about 40-60% of the annuity income based on his or her age;
Newer contracts offer cost of living adjustments so that income rises with inflation; and
Some insurers allow persons with serious health issues to get higher payouts.
Independent research shows that adding the fixed annuity to a portfolio of stocks, bonds and mutual funds decreases the probability that the retiree will run out of money. Everyone should have a guaranteed source of income to cover expenses. Your IRA or Social Security just may not cover it all. Many financial planners recommend using Social Security and pensions for essentials and an immediate annuity and other investments to supplement discretionary expenses such as travel and entertainment.
For the younger retirees, a variable annuity could be a better option. Over a lifetime, with the proper asset allocation, income payments should certainly keep pace with inflation according to annuity expert, Jeffrey Dellinger.
Not all immediate or variable annuities are alike, so I encourage you to review your financial goals with your financial planner at least once a year and ask him or her whether an annuity may me a good option for you. Keep in mind that your planner should shop for the best payout form the strongest company rated A+ or higher by A.M. Best.
