An annuity is the only financial tool capable of guaranteeing you will not run out of income during retirement. Every type of Annuity is capable of converting a lump sum of funds into an income stream, and you get to determine how long you want to receive income. The income period can be as short as 5 years and as long as the rest of your life. Determining the type of annuity you need to accomplish your income goals is pretty simple. We start by determining when you want your income to begin. If you want to start receiving income immediately, a Single Premium Immediate Annuity (SPIA) is likely the right answer. With a SPIA you give the insurance company a lump sum of money in exchange for a larger sum of money paid out over time. The next natural question may be what happens if you pass away before receiving your principal funds? The answer is most options are selected with a return of remaining balance, but some people will give up that option in exchange for a higher payout. Additionally, sometimes people are worried that they may need to change their mind about having a lump sum of money in the future. This is where some Single Premium Differed Annuities (SPDA) with a Guaranteed Lifetime Withdrawal Benefit (GLWB) rider can make sense. The GLWB rider allows the owner/annuitant to take predetermined withdrawals without surrendering the money to the insurance company. If over time the withdrawals deplete all the funds available, the insurance company will continue to pay the withdrawal income regardless of the amount of funds available in the policy. However, if the annuitant/owner decides they want to stop the income and receive the remaining funds they have the option to do so.
Before you annuitize or convert savings to an income stream.
It is critical to shop around for the right carrier. When you purchase a SPIA or annuitize an existing contract you will no longer have access or control of the funds you’ve given the insurance company. You will want to be sure the payout is as high as possible since you generally can’t move the funds if you find a better offer at a later date. At the same time you want to look at the financial rating of the company. The financial rating is a measure of the financial stability of the company, and your grantee is only as good as the company providing it.
For example it may be tempting to use a B rated company because they are offering a higher payout, but if that company’s financial reports continue to decline they could fall into receivership, and the insurance commissioner could force a sale of the company. If another company doesn’t wants to purchase the contracts it will fall on the state guarantee fund to make good on the contracts. However, only the present annuity values are protected and even then the guarantee amount in CA is only 80% up to $250,000. That means if you own a SPIA with a company that later becomes insolvent and you have exhausted the contract value there would be no more income.
It is extremely rare that insurance companies actually become insolvent, in fact only 29 companies have fallen into receivership since 2000, in comparison 540 banks have failed in that same time period! Doesn’t it make sense to begin with a company that has a long track record and the best financial statements?
When you request a quote from us we only use “A” rated and above companies.