Single premium immediate annuities can be a way of stretching your retirement savings as much as possible, so long as you aren’t worried about leaving money for your heirs. The surplus money helps pay for those who live much longer than expected. The size of the monthly check, which is fixed at the start of the contract, is based on your age and sex. You send the insurance company a big check at the start, let’s say for $100,000, and in return they agree to send you a small monthly check every month until you die, whether that unhappy date is 6 months from now or 30 years. They are the closest thing many of us can get to a traditional, old-fashioned pension: Instead of worrying about making our savings last for the rest of our life, we transfer our longevity risk to the insurance company.
These lifetime annuities are technically known as “single premium immediate annuities.” They are products offered by life insurance companies. You can thank the turmoil in the bond market, which has seen short, medium and long-term interest rates all rocket this year.
(The numbers for men are higher, not because of any particular sexism on the part of the annuities industry, but because men tend to die younger, so they can expect to receive fewer checks.) The percentage rises are less, though still substantial, even at older ages.
After more than a decade when annuities offered a pretty meager deal, they are now offering the best payouts since the collapse of Lehman Brothers in 2008.Īs you can see from our table, someone planning to retire early, in their mid-50s, and willing to pay a one-off premium of $100,000, can lock in a lifetime income of more than $6,000 a year, whereas a year ago they would have got significantly less than $5,000. They are now paying out monthly income as much as a third higher than similar annuities bought just a year ago. Lifetime annuities, a kind of do-it-yourself pension that can provide you a guaranteed income until the day you die, have suddenly become a much, much better deal.
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