Life Annuities
by Ellise Walsh

As any worker knows, it can often be difficult to save for retirement, college costs, buying a home, or other major financial goals. It is often a struggle just to pay the bills every month, and finding extra money with which to invest can be a real struggle for most people.

However, despite these challenges, it is important to begin a regular savings program as soon as possible. The power of compounding is an amazing thing, and it can turn a small monthly payment into a substantial nest egg when given many years to grow.

The most important part of saving for retirement or other goals is to get started. Take some time and educate yourself about financial matters. Learn the terms used by people in the financial industry so you can have an intelligent conversation with the broker or banker you seek help from. The time you take to educate yourself will be well rewarded when you are able to save a substantial amount of money by putting aside just a little extra each month.

Of course, where to put that money is an important decision as well. Annuities can be a good way to put money away on a regular basis and let it grow. Many people are fearful that they will outlive the money they have so diligently saved for retirement. Using a life annuity can help guarantee that this will not happen to you.

A life annuity is designed to provide an individual investor with a guaranteed income for the rest of his or her life. In some cases, a life annuity can also guarantee an income for the spouse or other relative of the person in the event of the death of the annuity holder. This means that no matter how long the investor lives, he or she will be guaranteed an income for the rest of his or her life. There is no worry about outliving the amount you have saved.

Life annuities are generally purchased with what is known as a guarantee period, for some amount of time, such as 10 years. This guarantee period assures that payments will continue for the specified guarantee period or the remainder of the annuity holder’s life, whichever is longer. For example, if you establish a life annuity this year and die five years later, annuity payments would continue to be made for another five years (assuming a 10 year guarantee period).

An optional feature of life annuities is the refund feature. This feature provides that if an individual pays one premium for a life annuity and dies before receiving the entire amount, the beneficiary of the annuity holder will receive a refund of the difference.

For instance, if the annuity owner paid a $10,000 premium to establish the life annuity, and then died after receiving only $4,000 in annuity payments, the annuity owner’s beneficiary would be entitled to a refund of $6,000 if the life annuity had a refund feature. The $6,000 is the difference between the $10,000 original value of the life annuity and the $4,000 that was paid out while the investor was still alive.

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