Annuities date back thousands of years to the Roman Empire. In fact, the word annuity is derived from the Latin annua, meaning “annual payment”, and was used to describe the money paid to soldiers for their years of service. Benjamin Franklin included annuities for the cities of Philadelphia and Boston in his will. (The Boston annuity endured until 1993 when lawmakers voted to use the lump sum that remained.) In 2007, then Federal Reserve Chairman Ben Bernanke disclosed that his largest financial assets are annuities. While the benefit of lifetime income remains a significant benefit of annuities, they have evolved dramatically in recent years to meet the increasingly complex needs of investors preparing for retirement. Annuities now span three basic categories—fixed, indexed and variable—and many can be customized to achieve your particular financial objectives. But the one universal aspect of all annuities is that they can provide “protection” in retirement. Today’s annuities provide a wide variety of benefits. Here is a quick look at some of the most popular.
PROTECTED LIFETIME INCOME
Since pensions have virtually disappeared (only 15% of private sector workers have access to pensions today), and Social Security typically provides only 40% of your pre-retirement income—the steady income that annuities provide is one of the most unique and important benefits sought by investors. Many use the income to pay for such essential (i.e., non-discretionary) living expenses as a mortgage, utilities and groceries.