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Like many HD contributors, I don’t own a Single Premium Immediate Annuity (SPIA). Social Security and pensions cover most all of our spending, I don’t need no stinkin’ SPIA.
Or do I? I’ve done the math. The calculators tell me I’m in good shape. But I know this sense of security I feel is precarious. There are any number of things that could blow up my plan. Lengthy care in a nursing home, victim of fraud, catastrophic market events are all examples of things that could upset my applecart.
In a perfect world I can make lots more money in the market than by purchasing a SPIA. Sadly, this world isn’t perfect, and a SPIA can guarantee my income will last as long as I do. Yes there is a cost to be paid, just as there is with insurance for my health, home, cars and life. I’ll probably never need the insurance, but then again, I might.
If I do end up buying, I’ll get one with a return of premium, or a period certain that guarantees my beneficiary at least gets back the unused portion of the premium. The moral of my story is to keep an open mind about SPIAs.
Another postive of annuities not yet mentioned: for those naive enough (ie me !) on their financial journey to have been talked into buying a whole life insurance policy, doing a 1035 exchange of the insurance policy to an annuity, allows one to access the built up cash value of the insurance policy without any tax consequences.
This allowed me to 1) stop paying a huge annual premium to maintain a death benefit no longer needed and 2) have access to the cash value. Maintaining the insurance policy allowed me the “privilege ” (sarcasm intended) to access MY money, at the low, low, interest rate of 5% !
I bought a SPIA, 10 years certain, so that it will completely pay out prior to me having to take take RMDs. And if I die within the 10 years, my wife/heirs will continue to receive my monthly benefit until its all paid out.
Dan: In the late 1990’s, when I was the Owner of a Nationwide Insurance & Financial Services agency, I sold a fair number of annuities to retirees.
Almost without exception, they were SPIAs with Period Certain. Like you mentioned, most often the client would ask me how long it would take to “make his money back,” and that usually became the Period Certain.
When my turn came, I opted for FIAs with Income Riders, Joint Life, with LTC Benefits…because while I have a great LTC Insurance Policy, my wife couldn’t qualify for one. Like you, financially, we didn’t “need” an annuity, but the peace of mind and certainty was worth consideration.
Had you come to me in those days, based on what you have shared here, I would definitely recommend the Period Certain over the ROP. The Period Certain benefit will almost always be greater than the ROP benefit, and with Period Certain, you know your survivor will still receive the benefits, whether you are her or not.
Continued Good Luck in Retirement.
Cannot a person invest in the same thing(s) that insurance companies invest in to back their annuities? Rather than handing over one’s money to an insurance company, why not build your own annuity?
Yes, you could buy the same sort of investments, but it’s a less appealing place if you’re the only person in the risk pool! One of the attractions of an immediate annuity is the “mortality credits” — the fact that those who die relatively young effectively subsidize those who live longer and who, as a result, enjoy far larger monthly checks than they could generate on their own.