The Cash Flow Clock: For Retirees - Book - Page 82
The Cash Flow Clock
transferred to an insurance company with the promise
that the company will pay out an income stream for
either a certain amount of time or for however long
we, or our spouse, are alive. If we pass prematurely,
the remaining cash value in the annuity is passed to
our beneficiaries. If the cash value gets used up and
goes to zero, the income continues according to the
contract. The longer the annuitant is alive, the more
the insurance company has to pay out. We are paying
the insurance company to manage our longevity risk
for us.
Some annuitants need income to begin immediately.
Others want to plan for an income need in the future.
Annuities offer different ways for assets to grow until
they are needed for income.
Variable Annuities (VA) are like mutual funds
offered by insurance companies. They have high
growth potential but also high risk. Like most mutual
funds, they have higher fees and tend to
underperform their benchmarks.
Fixed Annuities (FA) are like CDs. They pay a fixed
rate of return for a fixed period. They usually offer
higher rates of return and better liquidity (10% per
year) than banks. They are also known as MYGAs
(Multi Year Guaranteed Annuities).
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