• Home
  • E-Booklets
  • Pay Less Tax
  • Privacy Policy
  • Cheatsheets
  • Contact Us
  • About us

Retirement Income

New Ways to Get More Retirement Income

  • Retirement Advisors
  • Retirement Insurance
  • Retirement Investing
  • Retirement Living
  • Retirement Planning

Immediate Annuities COLA Riders to Stay Abreast of Inflation

Posted on September 27, 2011 by bobrichards

Many millions of Americans depend on immediate annuities to deliver them with the twin advantages of keeping their principal secure and deferring taxes. The major disadvantage of immediate annuities is that those secure fixed payments never rise and therefore do not keep pace with inflation.

For example, let us assume that you are depositing $100,000 in a single premium immediate annuity. One major carrier currently provides a contract that will provide annuity payments of $658.59 per month, or $7,903 in a year. The issue is, if one experiences a 3 percent annual rise in the cost of living, the purchasing power of the income from these payments will be lower every single succeeding year.

To defeat this challenge, owners of fixed immediate annuities can opt to buy a cost-of-living rider on their annuity agreement. This rider aims to ensure the income paid by the annuity rises to keep up with the rate of rising cost of living in the long term. For instance, an immediate annuity of $100,000 with a 3 percent rising cost of living protection rider will pay $499.06 per month to start out. The payment will go up  by 3 percent each year, thereby supplying a measure of protection from inflation. The catch is obvious; the price tag of the rider reduces the preliminary monthly payment by $159.53 as compared to the payment made on a contract with no COLA rider.  Some one who lives for 20 years from the start from the payments would see the monthly payment rise to $901.36, that is, $242 more per month than what they might receive from an immediate annuity without a COLA rider.

Each company offering fixed immediate annuities designs their product differently. Therefore, COLA riders also vary in their forms. While some are priced as an extra premium paid (with no reduction in the initial annuity payments), others (for example the one discussed above) have a lower monthly amount paid out in the beginning. You can also choose from a range of rates associated with increase, based on the desired amount of inflation protection. For instance, rather than have 3% annual protection, one could select a 6 percent inflation rider option.

Disclosure:

Be aware that it is not possible for fixed immediate annuities to be exchanged for value. The income, less the exclusion amount, is taxed in the same manner as ordinary income.  All guarantees should be looked as based on the ability of the company providing the insurance to pay claims. Fixed immediate annuities are classified as long-term investments. One should be aware that your COLA rider does not promise that payments will cover inflation.

 

Most Annuity Owners Make This Mistake

To get wealthy, invest like the wealthy
  • Why the wealthy steer clear of mutual funds
  • How the rich systematically make money in the market
  • Key metrics that differentiate good and bad investments
  • A comparison of ETFs and separately managed accounts you have never seen
  • Stop making the same investing mistakes as everyone else who listens to CNBC and reads Money Magazine. Do what the rich do! Free guide explains how they think and make investment choices.

    You might also like:

    • Retirement Solutions— Difficult Trends and What You Can Do
      Retirement Solutions— Difficult Trends and What You Can Do
    • Average Retirement Savings by Age – How Do You Compare?
      Average Retirement Savings by Age – How Do You Compare?
    • What's the True Cost of Senior Healthcare
      What's the True Cost of Senior Healthcare
    • Estate Financial Planning Has Nothing to Do With Your Wealth
      Estate Financial Planning Has Nothing to Do With Your Wealth
    • Use Life Insurance in Estate Planning to Treat Beneficiaries Equally
      Use Life Insurance in Estate Planning to Treat…
    • Transition to Retirement - Six Aspects that Help
      Transition to Retirement - Six Aspects that Help

    Filed Under: Annuities for Income

    About bobrichards

    Bob Richards
    Editor | Involved in Various Marketing Positions within the Financial Services Industry

    Leave a Reply Cancel reply

    Your email address will not be published. Required fields are marked *

    Second place winner best retirement blog

    SH award winner SMALL (1)

    Not Enough Savings to Retire?
    Learn Six Ways to Earn Retirement Income (from home)

    You do not need special talents, skills, computer knowledge, etc. We show you multiple ways others are working a few hours a week to generate a comfortable retirement income.

    Download Free Copy

    Latest Posts

    Update on Social Security Cash Flow

    Update on Social Security Cash Flow

    What's the True Cost of Senior Healthcare

    What's the True Cost of Senior Healthcare

    Social Security Office Cheating Retirees

    Social Security Office Cheating Retirees

    Use Life Insurance in Estate Planning to Treat Beneficiaries Equally

    Use Life Insurance in Estate Planning to Treat Beneficiaries Equally

    Estate Financial Planning Has Nothing to Do With Your Wealth

    Estate Financial Planning Has Nothing to Do With Your Wealth

    Categories

    • 401K IRA Roth Withdrawals, Distributions, and Rollovers
    • Annuities for Income
    • Estate Planning
    • Retirement Advisors
    • Retirement Insurance
    • Retirement Investing
    • Retirement Living
    • Retirement Planning
    • Social Security
    • Supplemental Retirement Income
    • Tax Savings
    • Alternative Investments
    • E-Booklets
    • Pay Less Tax
    • Privacy Policy
    • Cheatsheets
    • Contact Us
    • Subscribe
    • Sitemap

    Recent Posts

    • Update on Social Security Cash Flow
    • What's the True Cost of Senior Healthcare
    • Social Security Office Cheating Retirees
    • Use Life Insurance in Estate Planning to Treat Beneficiaries Equally
    • Estate Financial Planning Has Nothing to Do With Your Wealth

    The Retirement Income Blog

    25A Crescent Drive #1508
    Pleasant Hill CA 94523
    T: 844-887-4131
    E: [email protected]

    © 2018 Retirement Income