Buying a lifetime annuity can reduce your risk if living a long time but it increases your risk if dying soon. Say you pay $200,000 and receive about $1,300 a month for ten months, then die.
* With a basic single-life annuity, your heirs won’t get a thing from the insurer. You’ll have paid $200,000, received $13,000, and deprived your heirs of that $200,000.
* This risk can be reduced by buying a "cash refund" annuity. Say you put $200,000 into an annuity and receive only $13,000 in payments before you die. Your beneficiary would get $187,000 back. Your monthly payments will be lower if you specify a cash refund option, though.
* Another option, available to married couples, is to buy a joint annuity. Such an annuity will keep paying as long as either spouse is alive. However, the monthly income might be around $1,100 a month, not $1,300, on a $200,000 investment.
* Another option is to buy a "term certain" annuity, which will pay for at least a minimum time period, to you or a beneficiary. If you buy this type of annuity with a 10-year minimum and you die after three years, the same amount will be paid to your beneficiary for another seven years.