Does Your Investment Advisor in Centennial Recommend Annuitization?
Annuitization is not a concept that comes up very much. It doesn’t make cool cocktail party conversation like stocks and bonds, and it is nowhere near as trendy as cryptocurrency! But your Investment Advisor in Centennial may recommend annuitization, none the less. So, let’s take a look and see.
What is annuitization?
Two types of investment contracts issued by insurance companies are fixed and variable annuities. Annuitization converts those annuity funds into an income stream, usually paid monthly, but sometimes paid annually.
The most common ways of annuitization are:
- Lifetime
- Period Certain
- Period Certain plus Lifetime
Lifetime
So, the lifetime option is pretty much exactly what it sounds like. It pays you for the rest of your life. Then if there is any left, at death, any remaining balance goes back to the insurance company. And certainly, for joint annuities, the payments stop only after both owners pass away.
Period Certain
The period certain schedules payments over a preset period of time. The payments continue for the 5, 10, 15 or even 20+ years. They then continue on as survivor benefits for the full length of the term. The appointed survivor receives the benefits after the original owner of the annuity dies.
Period Certain plus Lifetime
Period certain plus lifetime guarantees that the owner has an income for a scheduled period, usually 10, 15, or 20 years. Regardless of when the original annuitant dies, the beneficiary will continue to receive the payments.
Does Your Investment Advisor in Centennial Recommend Annuitization?
Which is the best option for you? It depends on your circumstances. A visit with your Investment Advisor in Centennial will answer your questions so that you can make an informed decision.
What are Immediate Annuities?
Immediate annuities tend to be purchased with lump sums, creating a monthly income stream that starts right away. You may have heard the term “self-funded pension.”
Buying an immediate annuity gives you the freedom to choose the term to determine how long the guaranteed income stream lasts. Choose from the Lifetime, Period Certain and Period Certain plus Lifetime options. Then you can choose from the three primary types of immediate annuities:
- Fixed Payout
- Inflation-indexed Payout
- Variable Payout
Fixed payout
With fixed payout immediate annuities, the income you receive is the same every month all throughout the contract term.
Inflation-indexed payout
An inflation-indexed payout is a type of fixed immediate annuity. You still receive the guaranteed income stream from the insurance company. But that income increases every year based on a formula tied to changes in the Consumer Price Index.
Variable payout
With variable payout immediate annuities, there is no guaranteed income stream. The income depends on your portfolio performance using underlying investments. So, your payment varies some each month or could be reset once a year. This schedule is based on how you structure the annuity.
Choosing whether to annuitize is critical because you usually can’t change your mind once you start to receive payments. Consider this decision carefully with your Investment Advisor in Centennial because it will impact your finances and those of your beneficiaries for decades.
