Income Now Annuity Strategies

Historically/Currently Maple Sugar Brings Immediate Economic and Lifestyle Benefits Just as Income Now Annuities Do
Historically/Currently Maple Sugar Brings Immediate Economic and Lifestyle Benefits Just as Income Now Annuities Do. Marilyn Angel Wynn / Native Stock / Getty Images

You Either Need Income Now or Income Later

In the world of annuities, there are only 2 types of income needs, Income Now and Income Later.  Income Now is pretty much self-explanatory.  You need income to start immediately, and in most cases, continue for the rest of your life regardless of how long you live. The true value proposition of an annuity, which sets it apart from all other financial strategies, is that it is the only strategy that can contractually solve for Longevity Risk (i.e. outliving your money).

The primary place that an annuity should fit in a person’s portfolio is right beside your Social Security payments or pension payments, if you are so lucky to have any. Together these provide the needed income stream levels to maintain your desired lifestyle. 

Single Premium Immediate Annuities (SPIAs) Preceded All Other Annuities 

The original design of the annuity is the Single Premium Immediate Annuity. Some financial historians claim that SPIAs were first introduced to the world during the Roman times. SPIAs have been offered in the United States for over 200 years, and were first sold in the state of Pennsylvania as a guaranteed pension payment for retiring church ministers. Single Premium Immediate Annuities were the only type of annuity available for purchase until the mid-1950’s. Now there are so many types of annuities it can be daunting to figure out if you need one, and if so what kind.

Single Premium Immediate Annuities Work Like Pension Payments

Buying an SPIA is like buying your own personal pension plan. You can structure an SPIA contract to pay over two lives (typically a spouse) and you can contractually build in guaranteed time periods in combination with lifetime transfer of risk guarantees.

Cost of Living Adjustments Can be Added to Annuities

With SPIAs, you can attach Cost of Living Adjustment (COLAs) to the policy at the time of application that will contractually increase the income stream on an annual basis by the specified percentage you choose. For example, you can add a 3% COLA that will increase the income stream annually for the life of the policy by 3%. However, when you add a COLA to an SPIA policy, the initial payout is lowered when compared to the same SPIA policy without a COLA.

SPIAs are Simple Products to Provide Income Now

SPIAs have no annual fees, no market attachments, and provide the lowest commission (built into the policy) to the agent of any commercial annuity product. This strategy is a true transfer of risk, and the payments are primarily based on your life expectancy(s) at the time of application.

Charitable Gift Annuities(CGAs) Provide Income Now and Other Benefits

Charitable Gift Annuities work similarly to Single Premium Immediate Annuities by providing an income stream that you can never outlive with those payments starting immediately. The main difference is that CGAs are issued by nonprofit organizations like universities, hospitals, charities, etc.

Those entities are backing up the payments, so it’s important to do your due diligence on the claims-paying abilities and financial strength of the issuing organization. 

In addition, CGAs provide a tax benefit to the person buying the annuity along with providing a monetary gift to the nonprofit organization.  In other words, the nonprofit will provide your lifetime income stream, but when you die, they get to keep any money that remains in your account. 

WARNING! What? Deferred Annuities That are to be Annuitized Immediately? Just Don't

Because most agents are unfortunately driven by commission levels, you might have someone try to sell you a deferred annuity (variable or fixed index), and then recommend that you annuitize the contract immediately. Dream return scenarios and too good to be true proposals abound with this inappropriate and unsuitable recommendation.

Always remember that if it sounds too good to be true, then it is, and that is always the case with annuities.

If you need immediate income, then demand to see Single Premium Immediate Annuity or Charitable Gift Annuity quotes. Otherwise, you are just buying the agent a car, and not getting the highest contractual guarantee available.