Annuity Strategies: Living Benefits Can Help Counter Retirement Risks
This week, Craig Siminski, of CMS Retirement Income Planning, shares information showing how optional riders that add living benefits to annuities might help retirees address two financial risks: Outliving their savings, and Paying for long-term care:
An annuity is an insurance contract that offers an income stream in return for one or more premium payments. Income payments continue for the duration of the contract, which may be for life or a specific number of years.
A fixed annuity offers a set rate of return for the life of the contract. A variable annuity is riskier but offers the potential for growth because a portion of the premium is invested in the financial markets; the annuity’s future value and income payments are largely determined by the performance of the investment subaccounts selected by the account owner.
Guaranteed living benefits are optional riders that can be attached to annuities for an additional cost. Here’s how living benefits might help you address two important retirement risks:
1. Outliving Your Savings
You can receive a lifetime income stream from an annuity in one of two ways: annuitization or withdrawals. When a contract is annuitized, the cash value is converted into a series of periodic income payments based primarily on current interest rates (or market-based returns) and your life expectancy. Control of the account transfers to the insurance company, so you no longer have access to the investment principal.
A guaranteed lifetime withdrawal benefit (GLWB) is an optional lifetime income rider that can be attached to a variable annuity. It guarantees that you can withdraw a minimum amount of income from a variable annuity for life without having to annuitize, even if the original account value is depleted. If the markets perform well, the income amount could increase, but it typically cannot decrease unless you take a withdrawal that exceeds …
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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 21 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.
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