BBRC

Annuities

An annuity is a contract, generally with an insurance company, by which you give the company a large sum of money and the company promises to send ou a check for a set amount every month for as long as you live. In the beste of all possible worlds, this would mean that you would never have to worry about outliving your income. Whether you lived to 70 or 170, those checks would keep arriving monthly. The snag, though, is the amount of those checks.

The most visible problem with buying an annuity is that each check you receive represents a very small percentage of the original purchase price you paid. And those checks are not just interest payments on principal. Once you buy an annuity, that money is spent, and those monthly checks are all the money you will ever see.

The size of the payments you receive is determined by your sex your age at the time your checks begin to arrive, based on standard life expectancy tables. If a man pays $10,000 for the simplest form of lifetime annuity at age sixty-five, he will receive $80-85 a month for life; if a woman pays the same amount, she will receive about $70-75 (less because her life expectancy is greater). If the man waited until age seventy-five to buy, his check would be $ 105- Il5; a woman's about $100-105. In other words, buying at age sixty-five provides you with less than a 10 percent annual return on the money put in, and you lose the original purchase price.

With their fixed, relatively low rate of return, annuities are certainly not the place for all of your savings dollars. However, there are certain conditions which make them a more attractive investment. If you wait to buy until you are older, for instance, you will receive a higher payment level, albeit with the probability of a shorter payout.

Security is the primary selling point of an annuity. You know for certain that you will receive a monthly sum despite possibly adverse investment conditions, and without any effort at managing your money on your part. Annuities are also sold by many charitable organizations, combining the promise of lifetime income with the satisfaction of making a sizable donation. The payments from these annuities are usually smaller than those from life insurance companies, though.

If you are interested in exploring the possibility of buying an annuity here are some of the options open to you:

Guaranteed minimum payments. "What happens to all my money if I buy an annuity which pays me $ 100 a month and I die three months later?" is a common question. If you object to the idea of the insurance company getting something for nothing, you can buy a refund or years certain contract. A refund annuity guarantees that if contract holder dies before 'receiving paymen1s at least equal to the original cost of the annuity, the difference will be refunded to his estate. A years certain contract addresses the same question by guaranteeing that payments will be made to his survivor for a given number of years, even if the annuitant dies before that time. Each of these options, of course, will yield substantially smaller payments each month in exchange for the added protection provided.
Joint lifetime annuities. If you are concerned with providing conntinuing income for both yourself and your spouse, a joint lifetime annnuity will carryon throughout both of your lifetimes. These contracts vary widely in the amount they pay after the death of one of the annnuitants, sometimes continuing with the same monthly rate, someetimes providing some fraction thereof.