Purchasing Blocks of Retirement Income

Here are three basic questions you need to answer before moving forward with an annuity purchase.

1. What effect will taking money out of your various retirement accounts have on their continued ability 
to grow and provide income for as long as you live?
2. What part of your income can you count on and what part is less predictable?
3. How diversified are your income sources? Are you too vulnerable to major changes in the economy, including declining interest rates?

One relatively new long-term planning tool is an insurance company product known as a longevity annuity or deferred income. These annuities resemble pension annuities from an employer’s defined benefit plan or the fixed immediate annuities that you might purchase when you retire. The insurance company, in return for a lump-sum payment, promises to pay income for your lifetime.

The difference is that the income doesn’t start right away, or within a year of purchase, as it does with a pension or an immediate annuity. Rather, the starting date is a number of years in the future, based on the age you select. It just can’t be older than 85.

You may purchase a longevity annuity through your investment professional or directly from an insurance company. Or, you may make a lump sum transfer within a tax-deferred IRA or employer- sponsored retirement savings plan, as long as the plan includes this type of annuity in its menu of options.

One of the key benefits of owning a longevity annuity within a tax-deferred plan is that the US Department of 
the Treasury has ruled that a longevity annuity’s account value is exempt from the required minimum distributions (RMD) that applies to tax- deferred IRAs and employer plans once account holders turn 70 1/2.

QLACs are limited to 25% of your qualified retirement plans, not to exceed $125,000. By deferring these monies, you may pay lower ordinary income taxes during the deferral, which in turn may lower your exposure to taxation on your Social Security benefits.

Contributions from the book Guide to Understanding Annuities in this press release are used with permission from Light Bulb Press.