Retirement Income Annuities

Retirement Income Annuities are ordinary deferred annuities, but with an additional feature...a decreasing term life insurance rider that provides term life insurance with a face amount that decreases each year the policy is in force.

The effect is that if the annuitant reaches retirement age...for example, 65...the decreasing term insurance death benefit expires and annuity payments begin providing long term income. If, however the annuitant dies before reaching this age, the decreasing term insurance death benefit is combined with the value of the annuity and then paid to the annuitant's beneficiary in any settlement option chosen.

A number of financial products now offer significant security for retirees. Consider annuity policies, which allow you to invest a chunk of your savings in return for regular payouts. Annuities got a famously bad rap in the 1990s because of their unfamiliar - and surprisingly steep - fees. Since then, the variety of products has grown and some of the fees are down, especially if you shop around. Moreover, today there is an annuity to suit every stripe, and many are "unbundled," allowing consumers to customize their annuity just as they might tweak a new car purchase to add side-curtain airbags.

Even with all the bells and whistles, annuities still roll out of the factory on one of two basic chassis. Fixed annuities yield a steady stream of income for a set number of years or the rest of your life. Variable annuities can also provide regular checks, but they tie the amount of your payouts to the performance of an investment portfolio. Both types allow you to choose whether to begin receiving payouts immediately (in monthly, quarterly, or annual installments) or at a later date. And both varieties pay out partly taxable money - you are taxed only on your gains, not your original investment - at regular income-tax rates, an important fact to weigh when considering annuities for your financial plan.

Just like a new-car purchase, you then start adding options. You can buy fixed annuities and tack on inflation protection for your payouts; you can choose to add a death benefit - or not. Some policies offer an option for long-term-care insurance, which raises your payouts if you become disabled. On certain variable annuities, you can opt to have your portfolio value (and thus your payouts) reflect your performance only in neutral or good years.