Before You Open That Nest Egg

Dec 16, 2005

On December 12, The Wall Street Journal highlighted the important role lifetime income annuities can play in retirement. Just one company is featured in the annuity section of the article: New York Life. The article quotes Executive Vice President Ted Mathas.

The Wall Street Journal
Monday, December 12, 2005

Encore: A Guide to Retirement Planning & Living
Money Matters
Before You Open That Nest Egg...

By Glenn Ruffenach

Should I buy an annuity?

Retirees often speak about running out of money as one of their biggest concerns, says Mr. Randall in Dallas. But that anxiety, he says, is somewhat misplaced.

"What they're really worried about is running out of income -- a regular paycheck," Mr. Randall says. That's where an annuity can help.

A nest egg, depending on how assets are allocated and the rate of withdrawal, could provide income for many years. But there's no guarantee; even the best strategies for tapping one's savings can founder. An annuity, however, assuming that it's purchased from a reliable insurance company, will provide guaranteed income for life. That security is what makes an annuity appealing -- and why retirees should consider making such products a part of their portfolio.

Yes, investors have long been wary of annuities, primarily because individuals had little or no control over their money once they handed it to the insurance company. But an increasing number of annuities today offer features that address such concerns. Take New York Life Insurance Co. and its "LifeStages Lifetime Income Annuity." Among other options, an investor can accelerate payments from the annuity, have payments increase automatically and add a death benefit.

The latest twist involves "longevity protection." Let's say you've done your life-expectancy homework, and you think there's a good chance you'll make it to your late 80s, and perhaps your 90s. For about $165,000, a 65-year-old man could buy an annuity from New York Life (with what the company calls a "Changing Needs Option") that provides an annual income of $10,000 until age 85, at which point the annual payments would jump to $50,000 until he dies. (That compares with a premium of about $126,000 for a fixed annual payment of $10,000 for life.)

That guaranteed increase means "you can spend more money" early in retirement, says Ted Mathas, executive vice president of New York Life, "and know [the higher payment] will kick in" if you live a long life. "That's the key -- insuring against the back-end risk."

Annuities, to be sure, have their drawbacks. The fees can be steep, and the products themselves can be maddeningly complex. Still, if you want the predictability of a pension as part of your income in retirement, you can, in effect, buy one with an annuity.

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