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How do I convert a savings annuity into an income stream?

I'm 67 and retired and want to have a monthly income instead of taking out a lump sum from my annuity. Is it possible to convert it at this point?

Jun 26, 2012 by Rick from Milwaukee, WI in  |  Flag
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Hi Rick, Most annuities have two phases, the accumulation phase and the distribution phase. Contact the insurance company that issued your annuity. Tell them you wish to know the options for annuitizing your annuity. Let them know you are interested in monthly income.

A portion of your monthly distributions will probably be taxable.

You may want to compare the options your current insurance company will give you with immediate annuities from other insurance companies. Immediate annuities will pay you monthly distributions immediately after your policy is set up.

I recommend you work with an investment professional to compare your choices. A professional will explain the pros and cons of your different choices. You may want a professional paid directly by you on an agreed upon fee basis. There are many professionals who will charge you a flat fee for this work or an hourly rate. If you wish to have them work with you on a long term basis, it may be less to pay them a percentage of the investment assets they manage for you.

There are many reputable insurance agents who could also help you. Remember they are usually paid by the company whose insurance products they are selling. They might not be able to offer insurance products of companies that do not pay insurance agents. The cost for the services of the insurance agent is built into products they sell, just like when you buy groceries at the store. The costs for the people working at the store are built into the prices you pay for the groceries.

Have a great day! Dave

Comment   |  Flag   |  Jun 26, 2012 from Thousand Oaks, CA

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Hi Rick, Do you mean your 401(k)? If so, you have quite a lot of options. You would likely want to start by "rolling" your balance, tax-free, into a Self-Directed Tradtional IRA. You can either take Systematic Withdrawals from the IRA every month based on either how much income(interest, dividend, or growth) your account produces or you can take do a "Planned Depletion". In following the "Prudent Person Rule", you should be able to 3% to 5% from a well diversifed account without "adversely affecting principle". The last few years have caused that withdrawal amount to be called in to question, however. Another option is "annuitization" or a ""planned depletion" if the amount of income you need is greater than your account could support without touching your principle. You can get the highest level of guaranteed income by purchasing an Immediate Annuity which usually, but not always, involve you forfeiting your principle to an insurance company in exchange for a "Lifetime Income Stream". At your age, if you didn't opt for a "Period Certain" feature for your beneficiaries or a "Return of Unused Premium" feature, you could expect an income stream of 6% to 7.5%. The other option is simple math. If you need a higher amount of income(ie. 10%), you can park your IRA in a money market fund paying 1% or so and take 10% for 10 years. If you find an investment paying 3%, your 10% withdrawal would last 14 years. The higher the return, the longer it would last, but it WILL run out. If your company has funded a retirement annuity for you, all you need to do is call your Human Resources Department and they will take care of you. You will likely be given several options: Life Only, Life with 10 Years Period Certain, Joint-Life, or Reduced Joint-Life. Life Only will give you the highest amount but will cease at your passing. Life with 10 Years will pay less than life only, but more than the Joint Options and will pay the same amount for 10 years if you pass before 10 years(ie. you die after 3 years, it pays for 7 more years then stops). Joint Life pays a much lower amount than Life Only but pays the same amount to your wife for the rest of her life if you die first. The last option pays more than Joint Life but less than the other two and pays your wife about half of what you were drawing upon your passing, until she passes. I hope this helps.

Comment   |  Flag   |  Jun 26, 2012 from Columbus, GA

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