Income Assured with An Immediate or Current Income Annuity

Written by Hersh Stern Updated Sunday, October 6, 2024

Dreams are for passing on to your children – Not to the IRS The newly modified Current Income Annuity (CIA) sold by several large insurance companies may deserve consideration along your CDs or IRAs for a portion of your retirement income. If you're concerned about increased living and medical expenses while interest rates continue to be volatile, CIAs may enable you to receive substantially greater guaranteed income that you cannot outlive. In spite of this significant benefit, many financial counselors and clients know very little about CIAs. CIAs can work with assets like CDs or IRAs.

Regardless of the amount you have in your IRA, you may prefer a CIA for one of 4 reasons:

1. Payouts from an IRA CIA, in most cases, are substantially greater than required minimum custodial distributions starting at age 70 ½.
2. Variable bond or stock sub account CIAs can be chosen (opportunity to invest in stock or bond accounts). However, if a fixed payment CIA is used, payments will be predictable and stable. This is very important in today's volatile economy, particularly if payouts are necessary to pay for living expenses and other obligations like life insurance or long term care premiums.

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3. Cost of living benefits can be added to an CIA to help keep up with inflation.
4. Whether an IRA or not, the CIA annuitant (person or persons receiving the periodic payments) cannot outlive the annuity payments. On the other hand, individuals who prefer to maintain total control of their IRA, yet are interested in one of the above benefits of CIAs can consider placing part of their IRA custodial account into a Current Income Annuity.

Once you see the comparison between the two approaches you will typically make one of three responses.

1. "Works great, I need more guaranteed income that I cannot outlive." Sufficient income? Then pass your dreams on to your heirs!
2. "Looks good, but I want to make sure there is something left for my heirs." This generally involves a partial wealth replacement concept that is beyond the scope of this article. However, as an example, using a Fidelity & Guaranty Life Insurance Company, Baltimore, MD. Current Income Annuity with August 2002 rates, a 70 year old male with a $100,000 IRA and a 50 year old son could see total income of $250,000 or more paid over their joint lifetimes. Current Income Annuity payouts vary by age and interest rates in effect at the time of issuance of the annuity certificate.
3. "I don't want more income. I don't want to pay more taxes. I don't even need this IRA, but I'm forced to take out income." This is a classic wealth transfer situation to pass maximum tax-free assets to your heirs. Legal counsel and tax planning are generally required. The Current Income Annuity is a retirement planning tool that allows you to maximize your retirement income or maximize what you pass on to your heirs or Both!