A Life Annuity Ensures Life-Long Income

Imagine that you and your spouse are finally enjoying the freedom and fun of retirement. Your kids have flown the nest, the pressures of career are behind you, and you're in good health and able to travel, socialize and pursue interests such as volunteer work.

There's just one nagging worry. You're not sure just how many years of retirement you're facing, and planning a life income that could last to a ripe old age is a challenge. Living a long and healthy life is wonderful, but people don't want to outlive their money. The stock market declines of the past few years have made many retirees nervous about volatility. Even the income provided by bonds can decrease if the assets mature and are rolled over at lower interest rates.

Life Annuities as Insurance

One option to consider for at least a portion of your retirement income is an insurance product called a life annuity. It can be purchased with a tax-free rollover from an IRA or pension in which case the income is taxable. If it is bought with savings or proceeds from the sale of a home, it can provide a tax-advantaged income for life.

Some annuities offer the option to continue benefits to a surviving spouse or beneficiary. Life annuities often work best as supplements to income from other sources such as pensions and investment assets. With at least some of their income guaranteed by a life annuity, many retirees feel emboldened to invest some of their other assets in equities or in bonds. A fixed-term income annuity ensures that you will know what your payments will be from month to month.

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Also remember that life annuities are typically not liquid - you can't withdraw lump sum amounts beyond your predetermined income stream. You should have other sources of cash for financial emergencies or inflation protection.