Retirement & Financial Planning Report

An immediate annuity can provide you with guaranteed cash flow for life. However, annuity payout rates are based on current interest rates. Today’s rates are low so annuity payouts are skimpy.

You can buy an immediate annuity that will increase over time. If so, you’ll have to accept a low starting point to get future increases. Here’s an example of the tradeoff involved;

Conventional annuity: John and Mary Jones, both age 67, put $100,000 into a joint annuity. They’ll get about $6,700 a year as long as either lives. Unfortunately, that $6,700 probably won’t buy as much in, say, 2030 as it buys today.

Inflation-adjusted annuity: Instead, John and Mary can put their $100,000 into an annuity that will increase the payout by 3% a year. They would start receiving only $5,000 a year, not $6,700. After 10 years of 3% increases, though, John and Mary would be receiving over $6,700. Their annual payout would keep rising as long as either is alive.