Personal Retirement & Savings:
Life Annuities (LAs)
A life annuity is an investment that pays you a set monthly income for a specified period of time, or you can choose a guaranteed monthly income for life.
How does it work?
You pay a lump sum of money up front and get an income each month over many years.The size of your monthly payment will be determined by your age and the interest rates that are in effect at the time of purchase.
What options do I have when I buy an annuity?
- Joint-and-last-survivor option. This option appeals to couples. Payments continue as long as either you or your partner lives.
- Guarantee option. This option guarantees a certain number of payments. The guarantee periods are: 5, 10, and 15 years. This option may be placed on a Joint-and-last-survivor annuity. If both the annuitant and the survivor die prior to the expiry of the guarantee period all remaining payments (commuted value) will be paid to the beneficiary(s) or the estate. For example: a person has chosen a 10 year guarantee period (120 monthly payments) he/she dies after receiving payments for 3 years (36 months). The payments continue to the survivor. The survivor dies two years later (24 months). There are five years (60 months) of guaranteed payments remaining that would be paid to the estate of the last to die. Should one or both of the people named on the annuity live past the guaranteed period the income continues for life.
- Indexing. With indexing your payments will increase by the percentage indexing chosen at the time of purchase (Maximum 4% annually). This option will insure that the payments will keep up with inflation.
How are annuities priced?
The financial institutions look at a number of things when pricing an annuity, including:
- How much you wish to spend. This is called the premium and the larger the premium the higher your income will be each month.
- How many payments they will have to make over the years. With a term-certain annuity they know the exact number of payments. With a life annuity they estimate the payments based on current interest rates, gender, marital status, state of health and life expectancy.
* Annuity rates are always changing
* The more options added reduce the monthly income
* There is no guarantee that interest rates will rise over the years
* Once you buy an annuity there is no reversing the contract, even if you need the money
* A guaranteed income has some big advantages, but there are also some risks
We are able to provide you with expert advice if you’re not sure an annuity is right for you. Contact us today!