"Immediate" annuities are attracting more boomers drawn to lifetime income guaranteed by U.S. life insurance companies. Chris Blunt, executive vice president of retirement income security at New York Life tells Bloomberg a recent big jump in sales is just the "tip of the iceberg."
"As more baby boomers need to turn assets into income, they'll choose income annuities to guarantee they can at least cover basic expenses," he said.
Bloomberg reports sales of immediate annuities rose 30 percent to $8.6 billion in 2008. Immediate annuities pay a periodic fixed amount of money for life in exchange for a lump sum and they start making payments within 13 months from when they're purchased.
Cathy Weatherford, chief executive officer for NAVA, tells Bloomberg as life expectancies increase, more people want cash flow they won't outlive and protection from unpredictable market swings. Blunt expects New York Life may sell $1.5 billion of immediate annuity contracts this year, almost double the amount in 2007.
But retirement planners say retirees shouldn't rely too much on those immediate annuities, especially in the case of those who need access to their cash because an immediate annuity gives control of the lump-sum payment to the insurance company. Plus, the locked-in current interest rate is also a drawback in a time of unprecedented debt.