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Understanding Annuities

An annuity is essentially a contract with an insurance company. You'll typically pay the insurer a sum of money, and in exchange the insurer will commit to sending you regular payments immediately or in the future for the duration of the contract. Many contracts offer payments until the end of your life — or, if you want, until both you and your spouse have died.

There are many different kinds of annuities, and it's vital to understand the differences because some are generally good and others can be problematic. Here are the main kinds: immediate vs. deferred (paying you immediately vs. starting at some point when you're older), fixed vs. variable (certain payouts vs. payouts tied to the performance of the market or part of the market), and lifetime vs. fixed period (paying until death or paying for a certain span of time).

In a time when pensions are rare and retirement planning may have slipped through the cracks for some people, one third of Americans report having no retirement savings at all. Annuities let you buy yourself pension-like income.

How much can you expect to receive? Well, a 70-year-old couple might get around $1,000 per month via an immediate fixed annuity for as long as at least one of them is alive for a $200,000 purchase price. That, coupled with Social Security income, can bolster your retirement. A 70-year-old woman who spends $100,000 may get about $577 per month, vs. $641 for a 70-year-old man. (Women will usually receive less because they tend to live longer than men).

Annuities today with guaranteed income riders can help prevent you from running out of money in retirement, reducing stress, and letting you rest easy, safe in the knowledge that there is money put away for you in your later years. An annuity takes away much responsibility, letting a retiree just sit back and collect annuity checks each month.


Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC

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