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Guaranteed Lifetime Income

October 14th, 2015 at 10:26 am

PatientSaver suggested a post about SPIA's (single premium immediate annuities) and I agree it's a good topic. If you get to retirement age and you want to have a guaranteed cash flow for life, you can consider an SPIA. Basically it's a lifetime payout like a pension. You give them money (it can be IRA money or not), but you construct it the way you want. You can choose how much to invest, whether you get some inflation hedging, whether it also covers your spouse, etc. Every added factor of course reduces the payout.

There are a few advantages to SPIAs. First, as long as the insurance company stays in business (and insurance company failures are very rare), you will continue to receive your check. No worries about what the stock market is up to, or if your old company is going bankrupt if they will reduce you payout. You get paid for your lifetime, even if you live to be 110. And because part of it is considered return of capital, you'll get a higher interest rate and a bit of tax break than you'd get on a savings account. Also, you don't have to worry about one of your relatives stealing your money as you get older, the money is all with the insurance company, unavailable to anyone.

The downside? There are two. First, as with Variable Annuities, you want to get a 'no load' product. Otherwise your payout is going to be reduced by a sales commission. The other? It's a big one. You completely give up your principal. You get the cash flow, but not the cash.

For that reason, if it's something that interests you, I suggest splitting up your funds. If you have $100,000 and you want a safe cash flow, I'd may consider $50,000 in an SPIA, and the rest in some high grade bonds. The bond payout will be lower, but you can get at the cash in an emergency if you need it.

If you're interested, I'd once again go to Vanguard for a 'no load' SPIA. You can get a quote and find out about the numbers and see if it makes sense for you. You can check it out at:

https://investor.vanguard.com/annuity/fixed

1 Responses to “Guaranteed Lifetime Income”

  1. AnotherReader Says:

    Interest rates are low right now, making annuities a bad deal in general. If you insist on getting one, Vanguard is the best place to buy one. No sales commission, best products for the price.

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