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Tuesday Review: Eight Annuity Options, Which One Is Right?

When you pass the age of 59.5, you have the opportunity to cash in on all the hard earned 403 B money you put away for retirement.  A given is that life expectancy is 84.5 years.  Did I forget to mention that you need to know how long you are going to live in order to figure the best payout option for you?  hahaha  🙂

Ah the good life!

Ah the good life!

With an annuity the financial institution safely holds all the money that you have saved over your lifetime.  Each month they send you a monthly dole based on how long you want to keep getting money. Today I found out that there are eight options from which I could choose to be paid.  The first two are not actually annuities.  It is very confusing, and my husband has been reviewing our options since we came home from our meeting with our financial advisor four hours ago.  This is what we figured out.

anuity options3

Payout Option 1  Do Nothing

With this option you have saved money over the years, and the annuity company holds that money.  When you want to use YOUR MONEY for something, if it has been with the company for long enough, they will give it back to you.  In my case, that time period is 10 years because I don’t pay a fee up front (other than the 1% they take from everyone as a processing fee that doesn’t even show up on your statement.)  So if you want to go on a vacation, you contact the company, request and receive the money, pay taxes on it, and enjoy.  The rest of the money stays in your account and earns money if the stock market goes up, and loses money if your chosen investment program goes down.  It’s your risk.  If you want to take out more money than you have available, then you have to pay a penalty.  If you choose to annuitize, then you pay no withdrawal penalty.

Payout Option 2  Do Nothing Except Move the Money to a Fixed Account

You still control your own money, but in a fixed account the money is not subject to the wild growth or devastating losses of the stock market.  You could take the money out as you wished, once it has been with the company for 10 years.  The interest rate right now that the company will guarantee is 2%.  I’m not sure how that is compounded.  With this option I could take the 20 year amount out, and it would last 16 years before I ran out of money.

annuity options4

Six Annuity Options

Payout Option 3 Single Life Annuity with 20 Years Certain

  • All income is subject to income taxes.
  • The annuity guarantees more income than you earned, in my case about $20,000 over the 20 years.  If you live longer, of course, this amount increases.
  • You get a set income for life based a little less than what you would get if you choose to get the entire income paid to you in monthly payments for 20 years (single term).
  • If you die before 20 years is up, your beneficiary gets the lowered monthly dole for the remainder of the 20 years.

Payout Option 4 Single Term Annuity for 20 Years

  • All income is subject to income taxes.
  • The annuity guarantees more income than you earned, in my case about $60,000 over the 20 years.
  • You get a set income for 20 years paid to you in monthly payments.
  • If you die before 20 years is up, your beneficiary gets the monthly dole for the remainder of the 20 years.

Payout Option 5 Single Life Annuity with 15 Years Certain

  • All income is subject to income taxes.
  • The annuity guarantees less income than you earned, in my case about $35,000 over the 15 years (single term).  If you live longer, of course, this loss is minimized.
  • You get a set income for life based a little less than what you would get if you choose to get the entire income paid to you in monthly payments for 15 years.
  • If you die before 15 years is up, your beneficiary gets the lowered monthly dole for the remainder of the 15 years.

eggs

Payout Option 6 Single Term Annuity for 15 Years

  • All income is subject to income taxes.
  • The annuity guarantees more income than you earned, in my case about $40,000 over the 15 years.
  • You get a set income for 15 years paid to you in monthly payments.
  • If you die before 15 years is up, your beneficiary gets the monthly dole for the remainder of the 15 years.

Payout Option 7 Single Life Annuity with 10 Years Certain

  • All income is subject to income taxes.
  • The annuity guarantees less income than you earned, in my case about $100,000 over the 10 years (single term).  If you live longer, of course, this loss is minimized.
  • You get a set income for life based a little less than what you would get if you choose to get the entire income paid to you in monthly payments for 15 years.
  • If you die before 10 years is up, your beneficiary gets the lowered monthly dole for the remainder of the 10 years.

annuity puzzle

Payout Option 8 Single Term Annuity for 10 Years

  • All income is subject to income taxes.
  • The annuity guarantees more income than you earned, in my case about $50,000 over the 10 years.
  • You get a set income for 10 years paid to you in monthly payments.
  • If you die before 10 years is up, your beneficiary gets the monthly dole for the remainder of the 10 years.

So those are our options.  How would you advise us?  What are your retirement plans?  Are you saving?  Are you investing?

Einstein

22 replies »

  1. Here if we wait till we are 60 we can access our superannuation tax free. There is a myriad of options for how to go about having a post retirement income here too. That’s what the financial planners are for. We are lucky in that it is law that employers must make contributions to our super and we make a compulsory contribution as well. Then we can also add to that voluntarily. One important thing to remember is that the older you get the less risk you should be taking with your money.

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  2. An incredibly complex subject. I ended up managing my own pension fund within a tax- exempt structure that protects the family from inheritance tax. The rest is divided between real estate, cash and equities. It is a scary process betting on how long you will live and how much you can draw down.

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    • Exactly! We don’t have quite so much to worry about. My husband worries about it more than I am right now because he has a son. But there are so many options. I just don’t want to be on the streets when I’m 95! 🙂

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      • Well 95 would be something different for me, Marsha. My paternal grandfather died at 53, my father at 65 and my brother at 61. I am 56. So I assumed 80 as my life expectancy being an optimist. But my paternal grandmother lived to 97 so I guess somewhere in their there are longevity genes, just not on the male side!!

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        • Environment has something to do with it, too, I’m sure. My dad died at 63. I’m 61, so I’m hoping I don’t follow in his footsteps, but who knows? We just live life to the fullest while we are here! 🙂 Personally I hope you follow your grandmother and live closer to the 97 side! 🙂 You seem talented, young and vibrant to me! 🙂

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  3. What a post …. Amazing job you have done .. research, but I notice that you enjoyed it.
    With us living longer …. I would go for a 20 year option. As a woman 85 is a normal life length.
    Let us know what you’re going for.

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          • I haven’t planned anything for my pension … but I’m pretty good, but not so good as I’m today – but I don’t think anyone is when pension kicks in.
            Not complaining. *smile

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          • Well you are famous anyway! You probably don’t need a pension. I’m not so famous over here! Vince got his picture in the paper the other day, though! 🙂

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          • Famous … far from that … but I have always counted on that my country will look after me when times come. If I was young today I wouldn’t have that faith .. I would have pensions all over the place.
            I read that … about your husband made it to the media .. what was that all about. ??? Congratulations to him.

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          • He was helping kids through the Salvation Army Target give away. He got to take a 7 year old shopping for school clothes. I’m proud of him. 🙂

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  4. Whew. This is a complicated business. We are pretty much trying to figure all this out, too. I hope you let us know what you decide and why you made the decision. Choices! yikes. 😯

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    • I know. I’m leaning away from the life choices. You end up losing money in the long run. If we take out the term choices, we can put away money for our ancient age! Even if we saved everything, if we end up with major illnesses, like kidney disease, there is no way to pay for that kind of treatment unless you own a city! 🙂 My tendency is to enjoy it now.

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Marsha

Marsha

Hi, I'm Marsha Ingrao, a retired educator and wife of a retired realtor. My all-consuming hobby is blogging and it has changed my life. My friends live all over the world. In November 2020, we sold everything and retired to the mile-high desert of Prescott, AZ. We live less than five miles from the Granite Dells, four lakes, and hundreds of trails with our dog, Kalev, and two cats, Moji and Nutter Butter. Vince's sister came with us and lives close by. Every day is a new adventure.

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