Amp up with annuities

By Carolyn Bigda, staff writer

If you're about to retire or have already quit the workforce for good, adding an immediate annuity to your investment mix can provide guaranteed income for the rest of your life and free a portion of your portfolio from the vagaries of the market.

Plus, the payouts on this insurance product are far higher than what you could earn on any other income investment without taking on huge risk roughly 7% recently for a 65-year-old man, or nearly $600 a month on a $100,000 investment.

The drawbacks: You can't earn more than the guaranteed rate, no matter how high the market may rise. And you lose access to the money -- no tapping these funds to replace a broken-down car or spring for a vacation in Waikiki.

That's why you want to invest just enough money in immediate annuities (when combined with Social Security and pension benefits) to cover your basic living costs, and follow these guidelines:

1. Buy in gradually. Whatever amount you ultimately decide to put into annuities, invest in increments of, say, 20% a year over the next five years to achieve the best payout. How much income you receive is determined in part by your age and by prevailing interest rates. All else being equal, the older you are, the bigger your monthly checks will be. And if interest rates rise over the next several years a strong possibility given today's super-low rates -- your payouts will increase as well.

Another benefit to following this installment plan: "If something happens to your health, you won't have committed all your money," says Chris Cordaro, a wealth manager at Regent Atlantic in Morristown, N.J. You can use the leftover funds to help pay medical bills or leave a few more bucks to the grandkids.

2. Protect your investment. Stick with insurers rated A or better by A.M. Best or AA by Standard & Poor's, such as New York Life and Integrity Life. Then shop for the best rates among them at

If you can afford it, spring for an annuity with monthly checks that rise along with inflation. Your payouts will initially be lower, but over 20 years, you should come out ahead (see the example below). In a sense, you'll be making a bet on how long you'll live. But with your retirement income covered, at least you can feel secure that your health won't suffer from worries about money.  To top of page

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