10/2019 KIPLINGER’S PERSONAL FINANCE 57Once you give an insurance company
your money, you usually can’t get it
back, although some insurance com-
panies allow one-time withdrawals
for certain emergencies. Another
drawback is that inf lation will erode
the value of your payments over time.
Most insurance companies offer im-
mediate annuities with an inf lation
rider—for example, payments will
increase by 3% a year—but that will
lower your initial payouts by up to
28%. For example, if a 65-year-old
man invested $100,000 in a New York
Life immediate annuity with no inf la-
tion rider, he would receive $6,197 a
year. If he added a 3% annual inf lation
adjustment, his first annual payout
would be only $4,446.
An even greater concern is the im-
pact of interest rates on your payouts.
Two factors affect the amount of in-
come you receive from an immediate
annuity: your age (the older you are,
the higher your payouts) and interest
rates. When interest rates are low,
payouts are depressed, too.
Payouts are usually tied to rates for
10-year Treasuries, and that rate is
historically low, says Harold Evensky,
a certified financial planner and
chairman of Evensky and Katz/Foldes
Financial. Evensky believes a low-cost
immediate annuity makes sense for a
lot of retirees but that this may not be
a good time to invest in one. Waiting
will provide two benefits, he says:
You’ll be older, which means higher
payouts, and there’s a good chance
that interest rates will be higher in
the future than they are now.
If you’re worried that interest rates
could go lower—or you’d like to start
receiving at least some guaranteed
income now—consider building an
annuity ladder. With this strategy, you
spread the amount you want to invest
in an immediate annuity over several
years. For example, if you want to
invest $200,000, you would buy an
annuity for $50,000 this year and
another $50,000 every two years until
you have spent the entire amount.
If rates rise, you’ll be able to captureinsurance benefits. It will cover bills
for long-term care, but if you never
need care (or need only little of it)
your heirs will receive a death benefit
when you die. “It helps to remove that
concern that ‘I won’t get a benefit
from this,’ ” Bernhardt says. Be aware
that the policy is doing double-duty,
so premiums are significantly higher
than if you purchased a stand-alone
long-term-care policy. An independent
insurance broker can help you find a
policy among different companies.GETTING
GUARANTEED INCOME
A traditional pension will provide
guaranteed income for life. Although
more than 80% of state and local gov-
ernment workers have access to a pen-
sion, only about 17% of private-sector
workers can access that type of retire-
ment plan, according to the Alliance
for Lifetime Income, a nonprofit that
represents insurance companies and
other financial institutions.
If you’re not in the fortunate group,
an immediate annuity provides a way
to create your own pension, using
money you’ve saved in your 401(k)
or elsewhere. In exchange for a lump
sum, an insurance company will pro-
vide you with a monthly payment,
usually for the rest of your life. Vari-
able and equity-indexed annuities can
also provide guaranteed income in re-
tirement, but the amount may f luctu-
ate depending on the performance of
an underlying investment portfolio.
These annuities are more complex
than immediate annuities and often
come with high fees.
A popular strategy is to buy an im-
mediate annuity that will cover your
monthly expenses, such as utilities
and food. If a bear market hits, you’ll
have the f lexibility to wait until the
stock market recovers before taking
withdrawals from your portfolio
(although you may have to postpone
your winter Caribbean island cruise).
There are downsides to annuities
to consider before you write a check.a difficult time finding a policy if you
have a health issue (see “How to Af-
ford Long-Term Care,” March 2019).
Kitces advises buying a policy while
you’re in your fifties, when the cost is
lower and you’re likely still healthy
enough to qualify for a policy. Policies
are much more expensive than those
issued many years ago, but the higher
price also reduces the risk of steep rate
hikes in the future, says Kitces.
Some people resist buying long-
term-care insurance, thinking it will
be a waste of money if they never need
care, says Keith Bernhardt, vice presi-
dent of retirement income at Fidelity
Investments. The solution for them,
he says, can be a hybrid policy that
combines long-term-care and life