Question

Given the scenarios below, what is the best annuity option for each of them? Include riders if needed. Support your answer.

James lives alone and has a little white poodle named Boo-Boo. Boo-Boo is a mean little dog that will bite if his sacred pillow is touched. James has amassed a large 401(k) and wants to have a consistent monthly income stream until he dies. He is retiring in 3 months and wants to provide some death benefit to his family if he were to die prematurely

Answer 1

There are many types of annuity plans. Essentially they can be classified based on the timing of the benefit, variability of the benefit and coverage of the benefit.

Timing ::If a person wants annuity payments to commence immediately, he should buy an ‘immediate annuity plan’. However, if he wants the regular pension payments to start after a specified period (usually after retirement), he should go for a ‘deferred annuity plan’.After safety, returns play a vital role. As annuity products are very long term, most companies are conservative in terms of giving returns. These companies do not fully pass on the returns earned to the customers but retain a substantial portion of earnings as reserves to meet contingencies. This conservative approach may be detrimental to the interests of older people who depend solely on annuity payouts to meet living expenses. As inflation erodes the real value of the returns, small annuity , Hence Deffered annuity plan is better tp him to adopt.