Ask Kim: What kind of annuity should I buy?

By Kimberly Lankford September 30, 2013

This article appeared at the following website: http://www.chicagotribune.com/business/sns-201308151800--tms--kplngmpctnkm-a20130829-20130829-story.html

Q. I'd like to buy an immediate annuity to provide some income in retirement. I'm 70 years old, and my wife is 68. How different will the payouts be if I buy an annuity that pays out for my lifetime versus one that continues to pay out as long as my wife lives, too?

A. Buying a single-life annuity -- one that pays out only as long as you live -- provides the largest payouts. If you invest $100,000 in an immediate annuity at age 70, you'd get $7,956 per year for the rest of your life, according to ImmediateAnnuities.com. But the payouts stop as soon as you die, whether it's one year or 20 years after you invest the money. If you buy a joint-life annuity that would pay as long as you or your 68-year-old wife lives, then the payouts would drop to $6,300 per year.

Another option is to buy an annuity that would pay out as long as you or your wife live, or would pay out for at least 10 years if you both die before then. A beneficiary you choose would get the remaining payouts if you and your wife die less than ten years after buying the annuity. If you live longer than that, your payouts will still continue over your lifetime — and as long as your spouse lives, too. Adding a minimum ten-year payout to the joint annuity reduces payouts only slightly, to $6,240 per year.

The best choice depends on your financial situation. If you have a spouse who will need income after you die, it can be worthwhile to take the lower payout for the joint annuity. But if you already have a life insurance policy that will pay your spouse after you die, you may be better off taking the single-life annuity and benefiting from the higher monthly income while you're alive. If you choose this option, make sure you have a permanent life insurance policy (such as a whole-life, universal-life or variable universal-life policy) that continues as long as you live -- no matter how long that is -- rather than a term insurance policy, which might expire before you die.

The quote tool at ImmediateAnnuities.com makes it easy to compare the payouts for all of these variations, based on your age and the amount of money you plan to contribute. You can also do the calculations in reverse to see how much you'd need to contribute to end up with a certain amount of lifetime income.