Retiring? Is a SPIA right for me?

A SPIA is a single premium indexed annuity. With more than 10,000 seniors retiring everyday, many wonder what to do with their 401K or 403B accounts.

It is no wonder if you are confused. With all of the competing advertising targeted to seniors, even the savviest investors are conflicted.

So, lets start at the beginning. An annuity is an income stream. If you are receiving Social Security you have an annuity. Many annuities guarantee a lifetime income. A Towers Watson white paper based on a survey of 26,000 Americans over age 50 concluded “retirees with a higher percentage of annuitized income were happier and maintained a higher level of satisfaction than their less annuitized counterparts.”*

Does this mean you should roll your money into an annuity? Maybe or maybe not.

A good retirement decision has many moving parts. No one should have all of one’s money in an annuity or an investment. A cash fund is critical for upcoming emergencies and unplanned spending.

So what exactly is a SPIA? In 1995, indexed annuities were introduced to the market. An index annuity follows a particular stock market index, i.e., S&P 500. If the index goes up, your annuity will go up with it but if it goes down, your annuity will stay the same. Capital preservation is one of the benefits. Since the introduction of index annuities, major improvements have been made to the design. It is important to compare products and companies. In the past these products were very confusing and expensive, but improvements made by insurance carriers have lowered costs and improved flexibility.

Some of the most attractive improvements are:

• Free withdrawals
• No cap on the index
• Ability to turn on income anytime
• Guaranteed income that you can’t outlive
• Enhanced death benefits
• Possible bonuses

If you are considering a SPIA, meet with an independent broker. An independent broker works for his or her clients, not the insurance companies and can give you alternatives.

Sleep well, retiree!

*Annuities and Retirement Happiness, Sept. 2012