In tough economic times, an individual may have to shelve inheritance planning for more immediate concerns, including having enough liquidity on hand to retire in comfort.
In that regard, a recent article profiled a number of companies that are marketing to this very concern for old-fashioned security in retirement. The product they are pitching is a deferred-income annuity.
This type of annuity works by an individual paying a certain amount to an insurer, either in a lump sum or in a series of payments, in exchange for a stream of payments that will begin several years later. The product is attractive to many individuals because it allows flexibility in choosing several features. For example, individuals can choose when the dispersion will begin, such as 10 or 20 years after the pension was funded.
According to data, sales of deferred-income annuities in 2013 doubled from the previous year, totaling $2.2 billion. The increase from the mere $200 million in 2011 sales is even more notable.
For readers questioning how the companies can profit from that product, the answer lies in the guessing game of life expectancy. No one can predict how long he or she will live. Yet being conservative about life expectancy is an option that many individuals probably won’t take. After all, that approach could result in an individual exhausting his or her savings in retirement, possibly with too little in retirement accounts to get by.
On the other hand, an individual doesn’t want to exhaust all of the estate that his or her heirs will inherit. For that reason, a consultation with an attorney may help to balance the competing concerns of retirement and estate planning.
Source: The New York Times, “Buying a Guaranteed Retirement Income, for Some Peace of Mind,” Tara Siegel Bernard, June 6, 2014