| Several persons tout guaranteed lifetime income - | | | | It is critical to note that guaranteed lifetime |
| provided by life annuities - as the universal solution | | | | income comes at a price. It amounts to an insurer |
| for longevity risk. To be fair, there is merit in that | | | | taking your lump sum or accumulated fund and |
| notion. However, if you were guaranteed to | | | | paying you the interest from it! Therefore, you |
| receive only a dollar per month for the rest of | | | | are giving up ownership of your money for |
| your life, you would not outlive your income, | | | | safety - safety that you could have achieved by |
| right? That is the catch with guaranteed lifetime | | | | being prudent or investing conservatively. It is a |
| income - it cannot guarantee that you would | | | | win-win situation for the insurer, but not always a |
| avoid poverty in retirement. Perhaps nothing can, | | | | win-win situation for the annuitant, especially when |
| but guaranteed lifetime income does not often live | | | | too many eggs are in the life annuity basket. |
| up to the hype. | | | | Some life annuities also have insurance |
| Guaranteed lifetime income (GLI) is not | | | | components that may not necessarily add value |
| necessarily a necessity, but it is something good | | | | to your financial plan. Such annuities reduce your |
| to have - especially in uncertain times. The reality | | | | accumulation potential without offering value or |
| is that retirees need a balance between | | | | coverage to compensate for it. |
| retirement income and savings. In addition, | | | | It is important to note that GLI is often fixed |
| guaranteed lifetime income is only part of the | | | | perpetual income. This suggests that the value of |
| solution to the problem of sustained retirement | | | | that income declines exponentially over time, with |
| income. To put the importance of GLI in context, | | | | the erosive effects of inflation and taxation. |
| you should consider that there are viable | | | | Income from deferred annuities is taxable, with |
| alternatives to it. | | | | the prohibitive income tax applied when you |
| That the perpetual income provided by life | | | | receive other retirement benefits. This reduces |
| annuities is only part of the income solution | | | | the value package of the perpetual income |
| diminishes its role slightly. Many retirees survive on | | | | benefit considerably. |
| pensions and investment income as well. Income | | | | GLI is a useful benefit, but it often comes |
| from life annuities should supplement other reliable | | | | packaged with other demerits that cripple your |
| retirement benefits such as national insurance or | | | | retirement ambitions. In addition, it clearly does |
| company pensions. As a source of supplementary | | | | not guarantee that you will defeat longevity risk |
| retirement income, GLI is welcome but not | | | | or maintain your standard of living throughout |
| mandatory. | | | | retirement. |