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Your Financial Future

A Little More Respect for Annuities

With interest rates so low, it may not be the time to buy. But do your research

So far, says Mark Washawsky, director of retirement research for the consulting firm Towers Watson, the percentage of defined contribution retirement plans offering annuities has stayed pretty consistent at about 20 percent.

But there is also evidence that people don’t jump at the chance to receive guaranteed income for life. In an informal survey of employer defined benefit plans that offer a choice of a lump sum or an annuity at termination, 80 percent of participants took the lump sum, Towers Watson found.

Still, with the Obama administration’s current push coupled with joblessness and investment losses, annuities may gradually increase their role in retirement security.

Things to keep in mind

If you think an annuity may be right for you, here are some things to consider:

  • The likelihood that you will run out of money in your later years.
  • How much guaranteed income you will have from other sources.
  • Your comfort level with financial risk.
  • Whether you want to leave money to your heirs (most annuities end payments at your death).

Some annuities are inflation-adjusted, a nice feature but one which makes them more expensive up front. Some allow you to defer receiving monthly benefits until you are much older, 85, for instance—this tends to lower the cost to you. Also check out the credit rating of the insurance company, because you will of course want it to be around still in 20 years.

So, while right now is probably not the best time to buy, it is a good time to do the research.

Martha M. Hamilton writes a regular column for the AARP Bulletin on retirement and financial issues.

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