To Invest, or Not Invest, That Is the Question

Should you invest some of your savings in a deferred-income annuity?

To make a long story short, the  deferred-income annuity will provide a guaranteed monthly income, beginning at the age you set up, for the rest of your life. If you should die after it’s set up, however, you lose whatever is left. Your heirs won’t get anything.

But the chance that other buyers might die before collecting is one reason insurances offer a higher payout for this kind of annuity than for other products that guarantee income.

Say you’re 65 years old and invest $100,000 in New York Life’s Guaranteed Future Income Annuity. If you defer payouts for 15 years, at age 80, you will receive $28,695 annual income for the rest of your life.

If you have no serious health issues and people in your family tree lived long lives, it could be worth a look. If you doubt that you’ll live into your late 80s or 90s, maybe not.

One Treasury Department ruling offers another reason to consider a deferred-income annuity. You can now invest up to 25 percent of your IRA or 401(k) plan (or $125,000, whichever is less) in the annuity without having to take required minimum distributions at age 70 1/2.

Before the Treasury ruling, some insurers only allowed investors to use money from taxable accounts to purchase deferred-income annuities. Others required purchasers who used money from tax-deferred accounts to start receiving payments at age 70 1/2.

The Treasury ruling is expected to encourage more insurers to add deferred-income annuities to their lineups. If you’re tempted to buy one, retirement researchers at Morningstar Investment Management recommend waiting a few months because competition could lower prices.

Through a 1035 exchange, you can convert your life insurance into an income annuity without paying taxes on your gains. You’ll give up your death benefit, but you’ll also no longer have to pay premiums. You can lock in monthly income for the rest of your life or for a designated number of years.

Try putting those scenarios into your RetirementView and see what the graph shows. Does it make sense for you to do that or not. Just something to consider.