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Buy Income for Life

I suggest you avoid fixed indexed annuities, variable annuities, indexed universal life, variable universal life and whole life insurance products for generating retirement income. Their payback periods are long and these are high commission products, which is why they are sold. Some can have high surrender charges and the illustrations that I’ve seen are very optimistic. Separate your investment and insurance needs.

Insurance should be used to mitigate risk and not bought as an investment. You should focus your annuity needs on the contractual guarantees they provide, not on hypotheticals or what they might do. Also, avoid any free meal seminars you might get invited to; it could end up being a very expensive meal indeed. High commission products are typically sold at those seminars.

Here is a very interesting table for a hypothetical, single premium immediate annuity. SPIA for short.You make a lump sum premium payment to an insurance company and exchange they pay you an income for life. The income you get is a function of the premium you paid, current 10 treasury yields and your life expectancy. Here are the details for the table:

The top scale is the age at which you purchase the SPIA. You can get a SPIA for a male, female or multiple lives; this example is for a male.

The left hand scale is the interest rate on a 10 Year Treasury Note at time of purchase. You can see several interest rates; one line each for 10 year treasury yields ranging from 0 to 8%. I’ve shown several rates so that you get a feel for interest rate sensitivity on these products.