LifeAnnuity.com

What is a Life Annuity?

I'm sure the mayhem in the markets recently is no great secret.  Many equity (stock based) retirement portfolios suffered huge loses overnight.  In some cases perhaps being completely wiped out.  One of the alternative investments for retirement income is a Life Annuity.  Life Annuities are not equity (stock) based and accordingly do not suffer from market fluctuations.  Your funds are invested with a government approved Life Insurance company who agree to pay you an income, in this case for your life regardless of how long you live.  It doesn't matter whether you live 10 years or live to 100, they continue to pay the agreed income for life.  This stability of Retirement Income and capital security issue has become so important that a recent whitepaper issued by the American government announced the governments new intentions:

• Promoting the availability of annuities and other forms of guaranteed lifetime income, which transform savings into guaranteed future income, reducing the risks that retirees will outlive their savings or that their retirees’ living standards will be eroded by investment losses or inflation.

Conversely, because a Life Annuity represents a locked in deposit they can suffer from the ravages of high inflation.  This was one of the primary reasons they declined in popularity during the 70's and 80's.  However good retirement investment planning should include a mixture of retirement products to ensure that your income and security is responsive to changing economic conditions.  Under an ideal investment mix a Life Annuity is a perfect vehicle for the guaranteed portions of your income.  Income options are frequently monthly, quarterly or semi-annual or annual.  In general the retiree has the option of picking the frequency that suits their own particular financial circumstances best.

 Common Annuity Terms

Life Annuity - An annuity that pays out for the life of the annuitant regardless of how long they live.

Annuitant - The person, usually the annuity owner, whose life expectancy is used to calculate the income payment amount on the annuity.

Joint and Last Survivor - A joint and last survivor annuity is generally purchased by an annuitant and spouse.  The annuity continues to pay until both individuals have passed on.

Term Certain Annuity - This is an annuity that agrees to pay out the payments over a fixed period of time typically 10, 15 or 20 years.  Once the term has expired the annuity is finished.

Variable Annuity - The variable annuity is based on an underlying basket of securities which can vary in performance and return.  The annuity varies accordingly.

Deferred Annuities (Tax Deferred) - Deferred annuities are annuity contracts for people who want to save on a tax-deferred basis for many years

Estate Planning - The preparation of a plan of administration and disposition of one's property before or after death, including will, trusts, gifts, power of attorney, etc.

401 (k) or RSP - An employer-sponsored retirement savings plan that lets employees withhold and invest a portion of their income before it is taxed.  In the US the plan is a 401k and in Canada it is an RSP.

Immediate Annuity - An immediate annuity is an annuity which is purchased with a single payment and which begins to pay out right away.

IRA or RRSP - These are individual retirement programs, IRA being the US version and RRSP the canadian version.

These are the more common forms or terms you may hear but do not cover all the options and forms annuities may take.  Please take the time to ask your Life Annuity agent to clearly explain any terms which you do not understand.  It is your right to clearly understand the terms under which your money is held.

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