By Mark Miller <\/p>\n
CHICAGO (Reuters) - You've done a good job building your 401(k), and retirement is not far off. The question now: how to make sure that nest egg generates sufficient income to sustain you through a retirement that might last two or three decades. <\/p>\n
For years, retirement income has been something of a holy grail for retirement experts who worry about longevity - the risk that you will outlive your money. One solution is the income annuity. <\/p>\n
An income annuity offers a simple proposition: turn over a chunk of cash to an insurance company, which then sends you a monthly check for as long as you live. <\/p>\n
Income annuities don't play a big role on the stage of retirement solutions - but they have been in the spotlight lately. The U.S. Treasury Department has proposed policies that would make it easier to use income annuities within 401(k) retirement plans or Individual Retirement Accounts (IRAs). <\/p>\n
And income annuity sales rose 6.6 percent in 2011 to a record $8.1 billion, according to LIMRA, an insurance industry research and consulting group. That's still a very small fraction of the overall retirement market, which had $17 trillion invested at the end of the third quarter last year, according to the Investment Company Institute. But it is movement just the same. <\/p>\n
Savers may be drawn to the higher immediate rates of return that income annuities provide when compared with traditional fixed-income investments, like bonds and bank certificates of deposit. For example, a 65-year-old man who bought a $100,000 immediate annuity would receive $562 per month for life, according to Vanguard. That is an initial annual payout of 6.7 percent; far higher than any safe bond yields right now. <\/p>\n
That's made possible by the \"mortality credit\" baked into annuities - a term that refers to the money paid in by customers who die earlier than their life expectancy; that money goes into the overall pool and can be paid out to other annuitants. <\/p>\n
\"With expectations of low market returns for the next decade and longer, immediate annuities may be one of the few investment silver linings for investors looking to make their nest egg last their life time,\" said Harold Evensky, president of Evensky & Katz Wealth Management. <\/p>\n
But income annuities have not taken off. Many retirement investors do not like the idea of handing over their money to insurance companies. And most immediate fixed annuities keep the same monthly payouts forever; they do not rise with inflation. So if the man in the above example lived to be 84, he would still be getting $562 a month, and his rate of return would have dropped to 2.74 percent, according to Vanguard. His rate would fall over the long term because the monthly amount would never increase with inflation or growth of principal. <\/p>\n<\/p>\n
Here is the original post: By Mark Miller CHICAGO (Reuters) - You've done a good job building your 401(k), and retirement is not far off. The question now: how to make sure that nest egg generates sufficient income to sustain you through a retirement that might last two or three decades. For years, retirement income has been something of a holy grail for retirement experts who worry about longevity - the risk that you will outlive your money. Continue reading
\nIs an annuity in your future?<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"