Won't get fooled again: Income annuities help many baby boomers secure retirement guarantees
Guaranteed Future Income Annuity creates Lifetime Income stream
The first Baby Boomers turned 65 earlier this year, starting the largest retirement wave this country has ever seen. Over the next 18 years they will be retiring at a rate of 3-4 million per year.1 As they have with so many other parts of our culture, Baby Boomers are redefining retirement—not only what it means to be retired—but also with the financial products they use to ensure they have enough money to enjoy life the way they want to live it.
Concerned by the volatility of the stock markets over the past few years, many Boomers looking for a financial product that will provide them with a steady stream of income, guaranteed for as long as they live.2
For those Boomers, income annuities are a great way to close the gap between their monthly retirement expenses and the income they receive from Social Security or part-time work. For others, who are still a few years or more from retiring, an income annuity is a means of creating their own “pension-like” stream of retirement income.
Fortunately, there are a variety of income annuities designed to address the needs of the individual Boomer; generally, these policies are either deferred, meaning you can choose an income start date in the future grow your investments without paying income tax until you make a withdrawal, or immediate, meaning that you receive a regular monthly allowance within the first year of the policy.
Each product also provides a lifetime guarantee on the monthly income it generates, no matter how the financial markets perform. As for funding an income annuity, there are two primary methods: single premium annuities, where a lump sum from sources such as a 401(k) plan rollovers, investments, or an inheritance provides the initial value and flexible premium annuities, where premiums can be made over time.
For more information on single-premium, fixed immediate annuities in particular, the recent Financial Research Corporation white paper, “Income Annuities Improve Portfolio Outcomes in Retirement”3 is an excellent resource (Download the complete paper, including an executive summary).
New York Life4 has offered a fixed immediate income annuity for decades and debuted a fixed deferred income annuity. New York Life is also the acknowledged market leader, ranking as the number one provider of income annuities in the country for the sixth consecutive year, as of December 31, 2011.5
The potential for income annuities to address not only the retirement needs of Boomers but also future generations as well, however, is perhaps the most significant reason for the policies’ increasing popularity in recent years.
And, as we’ll see below, that popularity is well earned.
The three challenges of boomer retirement (and by extent, the challenge of Future Generations)
- Accumulating a substantial amount of their own retirement assets: many Boomers were the first to be cast adrift from traditional pension plans and encouraged to build their own security measure (using 401(k) plans and other retirement savings vehicles).
As a rule of thumb, academic studies suggest that most retirees need about 78%-94% of their pre-retirement income, adjusted for inflation, to maintain the same standard of living in retirement. Even $100 set aside today can generate over $1,000 or more in future retirement income thanks to the value of compound interest. “How to Rebuild Your Retirement, “ an April 1, 2011 article by Liz Weston that appears on MSN Money.
- Overcoming the effects of the most recent economic downturns: “the Great Recession clearly hit Baby Boomers at a vulnerable time, when they were close to retirement or at least should have been preparing for it, noted Rick Newman, in a Dec 10, 2010 article, ”Why Baby Boomers Are Bummed Out,” on USNnews.com.
The article points out that “more Baby Boomers …say they’ve lost money on investments and endured damage to their household finances than any other group.” Believing they have been burned twice, many Boomers are now determined to build certainty into their investments.
- Planning for a retirement that could last 30-40 years: Boomers who retire in their late 50s or early 60s can expect to live far longer than any previous generation. In fact, many will spend more years in retirement than they were in the workforce, according to Emily Brandon, Senior Editor of the USNews blog “Planning to Retire” (10 Ways Baby Boomers Will Reinvent Retirement, January 2010, USNews.com). This creates a heightened need both for accumulating assets and ensuring that they can last a lifetime. Successfully negotiating both could mean the difference between enduring retirement and enjoying it.
In short, if you’re a Boomer facing the likelihood of retirement, you’ll want to:
- Accumulate your assets.
- Insure their safety.
- Make them last a lifetime.
Fortunately, income annuities can provide you with a viable solution to all three challenges.
How can Income Annuities help?
A recent survey by the Insured Retirement Institute, Boomer Expectations in Retirement, indicated that “Boomers who own insured retirement products have a higher confidence in their overall retirement expectations, with nine out of 10 believing they are doing a good job preparing financially for retirement.”6
And, while both immediate and deferred income annuities generate guaranteed lifetime income, there are distinct differences between the two products.
A single premium immediate annuity, as the name implies, begins to provide income immediately, usually less than a year after it is purchased. It is usually purchased with one large lump sum premium, from a 401(k) plan rollover or other investments. Immediate annuities are generally best suited for someone who is already retired or will in the very near future. New York Life’s immediate annuity, New York Life Guaranteed Lifetime Income Annuity, offers a number of popular payout options. With a deferred lifetime annuity, people make an initial premium payment but don’t begin to receive income payments until a date set in the future.
In contrast, New York Life’s flexible premium deferred income annuity, the New York Life Guaranteed Future Income Annuity7 is generally best suited for someone age 55-64 who is still working and wants to create their own “pension- like” stream of guaranteed lifetime income. They also can continue to make premium payments to the annuity (the minimum initial premium is $5,000 and the minimum subsequent premiums is $100).8 Download the complete product brochure.
Income annuities, also referred to as “longevity insurance,” can also be used to help retirees protect their assets should they live beyond their life expectancy; so be sure to investigate your options fully.
Deciding on your policy
When deciding to purchase an income annuity, one factor all financial professionals stress is to stick with companies that are highly rated for financial strength and claims-paying ability. Both New York Life Insurance and Annuity Corporation and its parent company, New York Life Insurance Company have received the highest ratings for future strength currently awarded to any life insurer by all four major ratings agencies.9
To help you decide which income annuity best fits your circumstances, at no charge to you, a New York Life Agent—professionally trained and experienced—can help you analyze your needs and recommend appropriate solutions. Request a no-obligation review with a New York Life agent.
(1)”Income Annuities Improve Portfolio Outcomes in Retirement,” Financial Research Corporation(FRC), One Fanueil Hall Marketplace, Boston, MA 02109 FRC is an independent third party research firm not affiliated with New York Life Insurance Company or its subsidiaries. The research for this paper was funded, in part, by New York Life.
(2) The Wall Street Journal, May 14, 2011, “Is It Time to Buy an Annuity”
(3) ”Income Annuities Improve Portfolio Outcomes in Retirement,” Financial Research Corporation(FRC), One Fanueil Hall Marketplace, Boston, MA 02109 FRC is an independent third party research firm not affiliated with New York Life Insurance Company or its subsidiaries. The research for this paper was funded, in part, by New York Life.
(5) Source: Limra, 2011 Based on the premium amount each year from 2008-2010. Income Annuities are Single Premium Immediate Annuities, which are issued by New York Life Insurance and Annuity Corporation(NYLIAC)
(6) Boomer Expectations for Retirement, April 2011, Insured Retirement Institute, 1101 NY Ave, NW, Ste 825, Washington, DC 20005
(7) Issued by New York Life Insurance and Annuity Corporation, a Delaware Corporation). A wholly owned subsidiary of New York Life Insurance Company. Available in jurisdictions where approved. Guarantees are subject to contract terms, exclusions and limitations, and the claims paying ability of (NYLIAC). This contract has no cash surrender value and no withdrawals are permitted prior to the income start date. Income payments are guaranteed at least as long as the annuitant is living, provided the annuitant is alive on the designated income start date. Contracts in which a Life Only payout option is selected do not provide for payments to beneficiaries either prior to or after the designated income start date.
(8) Premium payments can be made any time up to 2 years before income start date. If the initial premium or the sum of all premiums exceeds $3 million, approval from New York Life Insurance and Annuity Corpration is required. Premium payments receive the payout rates in effect at the time the premium is received.
(9) Source: Individual third-party ratings reports. Moody’s,(Aaa) Standard & Poor’s(AA+), Best(A++) and Fitch(AAA) Ratings pertain to both New York Life Insurance Company and New York Life Insurance & Annuity Corporation as of 6/10/2013
For most jurisdictions the policy form number for the New York Life Guaranteed Future Income Annuity is ICC11-P100.(It may be 211-P100 and state variations may apply). Please include GLI policy form numbers.