The best feature of annuities, particularly for retirees, is that they provide an income, for life if desired, thereby creating a second monthly payment, in additional to the social security check. That lifetime income can be quite comforting. So how much do you need to invest and how much can you get? We will look at some examples but now that now, in the middle of 2011, a time of low interest, annuities quotes are also low.
Let's take the example of a 70-year-old man who statistically has a 16 year life expectancy (the average for men age 70).
If he deposits $50,000 with an insurance company, the annuities quotes he gets will average $385 monthly for the rest of his life, whether that turns out to be 5 years or 40 years! While there is nothing left for his heirs, he may be fine with that knowing that his payments will never stop so long as he is alive. Note that the annuities quotes will vary among insurance companies and can change from day to day, just like anything based on interest rates.
Let us look at the various factors which impact these annuities quotes.
Age of the annuitant (the investor) - If instead of being age 70, our investor were age 80, the insurance companies would provide much more attractive annuities quotes. Why? Because an 80-year-old is expected to die in 11 years so for the same $50,000 investment, the insurance companies will pay for a shorter duration and will therefore make larger payments.
The person's gender - Statistics indicate that women outlive men and a 70 year old woman can have a remaining life expectancy of 20 years. This means the total of the monthly annuity installments will be higher for the insurance company. So do women get better annuities quotes from insurance annuities? No. The insurance company will pay less than the $385 monthly to a woman because they statistically will make more payments to a female. The insurance company pays the identical present value regardless of gender.
Survivor Advantage - It is suggested that a wife and husband may choose a survivorship contract wherein annuity quotes will factor in both lives. The insurance company now takes the risk that EITHER spouse can outlive their life expectancy leaving the annuity company on the hook for extra payments. Assuming that both the spouses are usually of the same age (70 years in our example), the annuities quotes would average $318 monthly, less than if they covered EITHER a man or a woman.
Lifetime payments are an option. One can also opt for a fixed term of years as annuities quotes are available for such arrangements. If the solitary 70-year old person opted for annuity income for a period of 10 years, the payments would b $515 in keeping with the existing rates... But, the annuity company would pay out his beneficiary the remaining installments post his death if prior to the end of the 10-year term. The actual payout will also be the same for your female spouse as the gender difference will be a non-issue when a term of years is selected.
Immediate annuities could possibly be defined as the remittance of a single premium to a annuity company to enjoy regular periodic installments throughout a pre-determined number of years or life. But, after annuity quote commence, the annuity may not be surrendered for value. Pertaining to tax purposes, the income is in part treated by the authorities as part taxable income and part non taxable because some of the payment is not taxed, annuities quotes are more attractive than face value.
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