How to build an increasing stream of income

Immediate annuities offer a steady flow of income that can last your lifetime as well as your spouse's. However, with interest rates low and the rising cost of living, retirees are sometimes afraid to place money into assets that produce a fixed income which might not keep up with their increasing needs. One option would be to purchase several smaller annuities over a period of years.

Say that you are a 65-year old man and are considering putting $600,000 in an immediate annuity. With that investment, based on present rates (09/03/2003), an annuity company will possibly pay you $4,013 per month for the rest of your life. But let's look at what could happen if you were to make three smaller purchases over 10 years.

At age 65 a $200,000 immediate annuity might pay $1,338 per month. Five years later, age 70, you could purchase another $200,000 annuity which might provide a $1,511 monthly income. Finally, at age 75 the last $200,000 would buy an annuity with a $1778 income. The total monthly income you could start receiving at age 75 would be $4,627, $614 more than with a single large purchase.

The above example assumed that interest rates remained constant throughout the 10-year period. The higher payout came about because the older you are when you buy an annuity, the lower your life expectancy; therefore the annuity company increased the monthly income. And if interest rates rise, the income could go up still more since the payouts on new immediate annuities might possibly go up as well. Of course, the opposite could happen. If interest rates were to go down, new annuity rates could fall and you may have been better off with the one-time large investment.

There's not a simple solution to assuring that your nest egg will last your lifetime, while at the same time having your income keep pace with the ever increasing cost of living. But if you would like to learn how to protect your income against rising prices, I can very likely help you and we should talk.

If you would like to meet either in person or by telephone (or simply want to receive a copy of my "Income Planning Guide"), please use the CONTACT US link and let me know.

I look forward to meeting you!