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© St. Petersburg Times, published November 24, 2002
Check the details before starting annuity payments
Q. We are in our late 70s and are wondering if it would be wise to annuitize some of our annuities at this time of low interest rates. We are not pressed for money but could do a few more things with additional money. Also, one of our variable annuities has lost half of its original value, but under our contract, we can annuitize at the original value. It shows no sign of regaining its value. Should we annuitize?
A. You certainly should consider it.
Why did you buy these annuities? If your purpose was to provide retirement income and you are in your late 70s, tapping this potential income stream makes sense, especially if people in your family are long lived. Since you have multiple annuities, this is not an all-or-nothing decision.
To annuitize is simply to start taking payments. The payments might be for life, for a fixed period of years or for a combination of the two -- life with a minimum number of years of payments guaranteed.
You could choose a single life annuity based on your life or your spouse's or a joint life annuity that would continue until the surviving spouse died. A straightforward life annuity offers the highest income, but the payments stop at your death. To counteract people's fears about dying right after they annuitize, insurance companies offer life annuities with minimum payout periods. If you die before the period ends, your beneficiary gets the remaining payments. The catch is that the longer the minimum payout period, the smaller the monthly payments.
Some annuitization options include a cash refund to your beneficiaries if you die before receiving payments equal to your cost.
Unfortunately, the best time to annuitize is when interest rates are high rather than when they are low, as they are now. That means it makes sense to hold back on annuitizing some of your annuities since a better opportunity may be ahead.
Keep in mind that you do not necessarily have to stick with your current insurance company to annuitize. If another company's options are more attractive, you may be able to do a tax-free exchange before you annuitize. Just be sure that you understand what you are getting and what you are giving up. Any surrender penalties and the credit rating of both the old and new insurance companies should be taken into consideration.
The guarantee you have on your variable annuity makes it a special situation. I cannot predict the future, but I think it is unlikely that the stock market would be robust enough and the two of you would live long enough for sticking with the variable annuity to be a better bet. By annuitizing, you have the ability to more than double your money overnight, generating a steady stream of income for the future. That's difficult to beat.
Q. Where can I find a copy of the life expectancy table to calculate the required minimum distribution from my individual retirement account under the new IRS rules?
A. Go to www.irahelp.com and you will find both the life expectancy table and an explanation of the rules on IRA distributions released last spring. The rules do not take effect until January, but you have the option of using them to calculate this year's distribution if you are so inclined.
Q. Where can I get one of those I bonds that pays 4.08 percent interest? Is there a bank that sells it or must I go to a broker?
A. Savings bonds are sold over the Internet (www.savingsbonds.gov) and through banks. If your bank doesn't sell savings bonds, try a larger bank.
The I bond is one type of savings bond. It pays a combination of a fixed rate that applies for the life of the bond and a variable rate that adjusts based on the rate of inflation.
The Internet makes comparison shopping easier for many products, including annuities. Among the commercial sites now available are Annuity Zone (www.annuityzone.com), Web Annuities (www.immediateannuity.com), Insure.com (www.insure.com), Annuity Net (www.annuitynet.com) and Annuity.com (www.annuity.com).
-- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.