How Do Lifetime Annuities Fill Retirement Income Gaps?

Short Answer

‍Lifetime annuities fill retirement income gaps by providing contractual income payments that cover the difference between monthly expenses and existing income sources.

What Is a Retirement Income Gap?

‍A retirement income gap is the difference between total monthly expenses and reliable income sources. For example, if expenses are $5,000 per month and income sources total $4,500, there is a $500 gap.

How Lifetime Annuities Work to Fill Gaps

‍Lifetime annuities provide contractual income designed to cover the identified gap. The payment amount depends on the income start date and life expectancy.

How Lifetime Annuities Are Priced

‍Lifetime income products are priced primarily on life expectancy. Interest rates play a secondary role. Older individuals typically receive higher payments because fewer projected payments are expected.

Can Unused Money Go to Beneficiaries?

‍Yes. Lifetime annuities can be structured so that 100 percent of unused funds go to beneficiaries. Payments can be structured as a lump sum or ongoing income streams.

Common Misunderstandings About Boosting Income

‍A common misunderstanding is that boosting income means increasing market growth. Lifetime annuities provide contractual income rather than market-based growth.

Key Considerations for Filling Income Gaps

‍Key considerations include the amount of the income gap, the desired start date, and whether payments are structured for single or joint life.

Bottom Line

‍Lifetime annuities are used to fill retirement income gaps by providing contractual payments based on life expectancy and income start date.

FAQ

What determines lifetime annuity payments?

Life expectancy and income start date primarily determine payments.

Do interest rates determine annuity income?

Interest rates play a secondary role compared to life expectancy.

Can annuities leave money to beneficiaries?

Yes. Contracts can be structured so unused funds go to beneficiaries.

Is boosting income the same as market growth?

No. Boosting income refers to filling income gaps with contractual guarantees.