Guarantee Income in Retirement

By Kimberly Lankford June 26, 2006

This article appears at the following website: kiplinger.com

I'm 75 and have been retired for several years. I'm worried that I might outlive my retired savings and would like to spend some of my money to buy an immediate annuity that guarantees a payout for life. If I invest $100,000, how much monthly income can I get?

The amount of your monthly income depends on whether you'd like payments to continue after you die. You'll get the biggest payouts if you buy a single-life annuity, which means that payments will stop when you die — whether that's soon or decades for now. A 75-year-old man investing $100,000 can get $928 per month from a single-life annuity, according to ImmmediateAnnuities.com, an annuity brokerage that works with many companies and is a great source for price quotes.

If you're married and would like payments to continue for your spouse, too, you could buy a joint-life annuity. The monthly payouts are a bit smaller — $728 if your wife is 75, too — but the annuity continues to pay out as long as either of you live.

Or you could get an annuity that continues to pay out for a certain time period, even if both you and your spouse die before then. A 75-year-old couple investing $100,000 could get a $712 monthly payout for a joint-life annuity that pays as long as either spouse lives or ten years, whichever is longer.

We had heard about annuities and were investigating them for our IRAs. We also heard bad things about pushy brokers over the years. So when we went to the ImmediateAnnuities.com site we were skeptical about calling them. But whenever we called their staff was really friendly. They answered all our questions and one of their reps even told us that at our ages there was no advantage to buying the annuity with our IRAs. These guys are really honest!

Fred and Gloria Pollard

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And those are just the regular immediate annuity rates. A few companies, such as Vanguard, AIG, Genworth and Lincoln Benefit Life, now offer medically underwritten annuities, which pay extra if you provide medical records showing that you have a health condition that can lower your life expectancy, such as heart disease, most cancers, diabetes or Alzheimer's. In early May, for example, a 75-year-old man who provided medical records showing that he had coronary artery disease and received treatment with a coronary artery bypass graft could have received an extra $1,344 per year from Vanguard's medical underwritten immediate annuity because of his health condition — giving him the rate that a 78-year-old would usually get.

The specifics vary by company and the details of your medical condition. Reyer Swaak, 75, of Chatham, N.J., had prostate (stage 2) cancer that had been successfully eradicated through radiation and surgery for a blocked colon. He went to ImmediateAnnuities.com to shop for the best deal, and broker Hersh Stern told him about underwritten annuities. Swaak requested 40 pages of medical records from his hospital and doctors, then Stern found several companies to offer Swaak 3% to 10% higher than the standard payout rates.

You need to know to ask for these special rates. If you don't submit your medical records, then the annuity companies automatically give you the standard rate for a 75-year-old, without asking if you have a medical condition that could qualify you for a higher payout.

These annuities are best for people who have health issues but could still live long enough to benefit from the lifetime income stream. "With medical advances today, people with medical conditions can live a long time," says Ellen Rinaldi, principal of retirement services at Vanguard.