In a previous article, I discussed some of the factors influencing annuitization. Deciding to annuitize is just the first step, however, because your client must then choose an income payout option. That can be a daunting task because of the multiple payout options such as single life; joint life; period certain and the variations within the options.
It’s an important decision that’s often irrevocable. I asked several financial advisors with extensive experience counseling clients on this decision about how they guide clients.
Steve Plewes, CHFC, AIF with Advisors Financial Group in Bethesda, Maryland approaches the payout decision as part of an overall planning strategy to provide a level of guaranteed income for clients. He considers clients’ family history and life expectancy.
Plewes, a Million Dollar Round Table (MDRT) member, also factors in other sources of reliable income available to the client, such as pensions and Social Security, because those amounts influence how much income the annuity needs to provide cover basic needs. When there are two persons depending on the income, the analysis includes the survivor’s projected needs and income, he adds.
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Shelly-Ann Eweka, CFP, ChFC, financial planning manager with TIAA-CREF in Denver, Colorado, also emphasizes the importance of including survivors’ long-term needs in choosing a payout. Some annuitants focus largely on the income differential between single life and joint life annuities, she says, and that can cloud their judgment. For example, if the single life option pays $650 monthly and the joint life pays $400, some clients will object to the $250 reduction, even if the joint option is best for their family’s security.