Is an Annuity Right for You?

by D. Ray Lewis

As director of the Free Will Baptist Board of Retirement, one of my responsibilities is to attend several state association meetings each year. As I look around during these meetings, they all have one thing in common—a lot of gray hair in the audience.

Senior citizens have become the largest and fastest-growing segment of the American population. According to the 2010 census, for the first time in history the number of people in the U.S. over age 65 grew faster than the country’s total population during the preceding decade. The number of people in this age bracket increased by more than 15% during that period. Within the over-65 population, the fastest growing age segment is the 85-and-over age group. Believe it or not, some of them are Free Will Baptists.

These figures confirm that people are living longer, which means they will need income for a longer period of time. The problem is that many of them are outliving their money because they never anticipated living so long and did not
make proper preparation.

If we want to maintain our present lifestyle throughout retirement, it is imperative to plan ahead. It won’t just happen. Even the person who says, “I don’t ever plan to retire; I’m going to work until I die,” needs to prepare. None of us know what the future holds. We may be physically unable to continue working until our final breath, but even if you succeed at working until the end of your life, what about your spouse? Can she make it financially if you haven’t made proper preparation? Isn’t it better to prepare and not need it than to reach that point in your life and have nothing?

One of the safest ways to prevent outliving your money is to choose an annuity as the source of income in retirement. Annuities are designed to provide a steady income for life. Annuities fall into one of two classes, fixed or variable. The annuities offered by the Board of Retirement are fixed annuities. They provide income for life with a guaranteed rate of interest.

Variable annuities are exactly what their name implies. The funds are invested, and the value of the account is determined by the performance of those investments. With this type of annuity, your monthly benefit varies.

The Board of Retirement offers both single life and joint life fixed annuities. Since providing a steady source of income is the primary purpose of an annuity, we offer three options with each annuity choice.

• Single Life Annuity. The simplest form of annuity, a single life annuity guarantees income during the lifetime of the participant only, with no survivor benefit after the participant’s death (no matter when death occurs). Keep in mind, however, that the participant will never outlive his money with a single life annuity.

• Joint Life Annuity. Like the single life annuity, the participant will never outlive his money. The difference between the single life and joint life annuity options is that the beneficiary also continues to receive benefits for the rest of his or her life. It doesn’t matter how long or how short that life span may be, the benefits will continue as long as either one is alive. However, no benefits will continue beyond the death of the participant and beneficiary.

Both the single life and the joint life annuity offer the option of income for life with two different guaranteed benefit periods. Upon selecting the annuity option, the participant can choose a 10 or 15-year guaranteed period.

With the single life annuity, the participant will receive an income for life, no matter how long or short that life may be. If he dies before the guaranteed period is completed, the beneficiary will continue to receive the monthly benefit to finish out the period. If the participant survives the stated term, he or she will continue to receive an income for the rest of their life.

The joint life annuity with a 10 or 15-year guaranteed period is also available and works similar to the single life with guaranteed period. The participant and beneficiary will receive an income for life, no matter how long or short it may be. If both the participant and beneficiary die before the guaranteed period is up, the contingent beneficiary continues receiving the monthly benefit to finish out the guaranteed period. Remember, if the participant or the beneficiary (or both) survives the stated term, he or she will continue to receive an income for the rest of his or her life.

People enter retirement with different hopes, plans, and dreams. To some, it is the end of a journey; to others, the beginning of a new and exciting chapter. It can be the most enjoyable and productive time of our lives…if we prepare ahead of time. Contact our office for more information.

About the Writer: D. Ray Lewis joined the Board of Retirement in 1982. He became director in 2005 after serving for several years as assistant director. Visit www.boardofretirement.com.