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What are your thoughts about buying an immediate annuity with about one-third of an IRA? I believe this would provide more money per month and could not be outlived. I am 62 and retired.
An immediate annuity can be a valuable piece of your portfolio in retirement. It's one of the only ways to guarantee that you'll receive an income for life, no matter how long you end up living.
Unlike deferred annuities, which people use to save for retirement, you don't buy an immediate annuity until you actually retire and need to generate income from your savings.
In return for a guaranteed income stream, you give up a lot of flexibility. For one thing, accessing your principal after you buy the immediate annuity -- even if you need the money in an emergency -- can be tough. Some companies offer additional access to the funds, but generally charge extra for the option. As a result, many advisors recommend investing no more than 30% of your assets in an immediate annuity.
Instead of calculating how much to invest based on the value of your retirement savings, though, it's better to work backwards. Add up your monthly expenses, then subtract your guaranteed sources of income such as social security and any pension payouts you may receive. If you still fall short, figure out how much money you'd need to invest in an immediate annuity to provide enough monthly income to plug that gap. You can get payout quotes from several annuity companies at Total Return Annuities.
This site only provides quotes for fixed immediate annuities, which pay the same amount of money for the rest of your life. It can be relieving to have the guarantee that the monthly checks will never change, but the amount won't increase with inflation even if you end up living another 30 or 40 years. And you may want to wait a little while before buying a fixed immediate annuity because interest rates are at such a low point right now.
If you're worried about keeping up with inflation and don't mind taking some risk, you may want to invest in a variable immediate annuity or layer one on top of a fixed immediate annuity.
Variable immediate annuities invest in mutual fund-like accounts, and your monthly checks can increase or decrease in value depending on the performance of the investments. T. Rowe Price, TIAA-CREF, Vanguard and Fidelity are a few companies that offer low-cost variable immediate annuities.
Before you invest in any kind of immediate annuity, you'll need to ask yourself some tough questions about your health. Even though the annuity doesn't have to stop paying when you die (in return for a little less monthly income, you can set it up to pay for a certain number of years or as long as you or a beneficiary are alive), it's still the case that the longer you live, the further you'll end up coming out ahead with an immediate annuity. If you're in poor health and don't think you'll live as long as the average life expectancy for someone your age, you may want to withdraw money from your retirement accounts on your own instead.
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