Info about Health
Chronic Fatigue Syndrome
You’ve been tired for months. Just tired. Perhaps your joints ache, and your muscles. You have an occasional fever and soar throat. You feel depressed on most days. You are losing interest in life. All you want to do is sleep - for hours.
In addition to term and cash-value life insurance, insurance companies sell
annuities. Although annuities are issued by life insurance companies, they work quite differently than cash-value or term insurance policies. Annuities pay a regular stream of income while you live, usually after you retire, in contrast to life insurance, which pays your beneficiaries a lump sum when you die. Annuities also provide the advantage of tax-deferred compounding on the investment portion of the account.
Two basic kinds of annuities exist: immediate and deferred. Immediate annuities
are purchased with a lump sum (and begin to generate an income stream immediately). Typically they are purchased by people in retirement to provide a guaranteed stream of income. The lump sum might come from a distribution by a pension plan, a salary reduction plan, an IRA, a Keogh plan, or investments that you have built up over the years. Different insurance companies offer varying levels of monthly income, depending on how long you will receive payments.
Deferred annuities are bought by younger people who want to save tax deferred for many years, then convert to a payout schedule once they retire. You can purchase a flexible premium retirement annuity through regular monthly or annual deposits of as little as $25. You are not required to pay a premium every year, but the more you invest, the greater your annuity’s value grows. You can also buy an annuity with one lump sum. This is called a single-premium deferred annuity (SPDA). Most companies require at least $2,500, though they prefer $10,000 or more. Annuities also have a life insurance component because your beneficiaries receive the entire accumulated value of your annuity (what you paid in plus the interest earned) if you die before receiving annuity payments.
If your life insurance policy accumulates enough cash value, you can convert
that value into an annuity to boost your income stream in retirement. Take this step,
however, only if your children are self-supporting and you no longer need as much
life insurance.
• Fixed versus variable annuities.
You have two annuity options. The more conservative route is a fixed-dollar annuity, which the insurance company invests in bonds or mortgages. Each year, the company announces the fixed return for the next year, depending on the current investment portfolio. The fixed return is the rate the company will credit to your annuity. In the mid-1980s, double-digit annual returns were routinely promised, but by the 1990s, rates had dropped to the 7 percent to 9 percent range. The insurance company provides some level of guaranteed minimum return, however—usually about 4 percent. Do not be lured by a high first-year rate, which often drops dramatically in subsequent years. To protect yourself, make sure that your policy offers a bail-out provision. This gives you the right to liquidate all or part of your annuity without cost if your renewal rate is ever less than 1 percent of the previously offered rate. Usually, you must notify the insurance company within 30 days of receiving notice of the renewal rate that you
plan to bail out. Nevertheless, do not rely on the bail-out clause if you opt for a
fixed annuity. Choose a company that has paid a consistently above-average return;
chances are that its record will continue.
Your other option is a variable annuity, which offers the potential for higher
returns, though at greater risk. The variable annuity contract gives you a choice
among several stock, bond, and money-market portfolios. Within the stock category,
you will normally be offered a selection of sector, aggressive growth, growth, growth
and income, international, and balanced funds. With bonds, you may shift among
corporate, government, high-yield, and international fixed-income portfolios. You
can allocate your money among stock and bond options any way you like and
transfer the funds as market conditions change. As the stock and bond markets
swing in value over the years, your annuity’s value also rises and falls.
If you select a company with a proven investment performance, you can
probably do far better in the long term with a variable annuity than with a fixeddollar
annuity. The key is to purchase a contract with top-notch investment managers.
• Payout options.
Once you reach retirement age, annuities offer many different payout options. In general, the longer you obligate the company to pay benefits, the lower your monthly check. Whether you think that you will live a short or a long time determines your regular stipend. Each company determines its payout scale by estimating survival rates and the company’s expected earnings on investments. The duration of annuity payments can be based on a life contingency, a certain period of time, or on a combination of the two. The following are the usual choices that you will be offered.
• Ten-year term certain annuity.
If you think that you will live ten years or less after retirement, you can choose an annuity that will pay you or your heirs for only ten years. This option provides the highest monthly benefit. However, if you live more than ten years, you’re out of luck (at least as far as the company’s obligation goes). This is a very risky strategy—unless you are in very poor health when you retire—because the average life expectancy today is well into a person’s 80s, or more than 20 years from the usual retirement age of 65.
• Life annuity with ten-year term certain.
This annuity will pay a fixed monthly amount for the rest of your life. However, if you die before the annuity has paid you benefits for ten years, your beneficiary (usually your spouse), will receive your payments only for the remainder of the original ten years. This form of annuity pays less than the ten-year term certain. It also is significantly risky for your spouse, who would not receive payments after ten years from the date of your retirement, assuming that you have died. If you select this option, make sure that your spouse has enough other sources of income to fall back on to cover the shortfall.
• Life annuity.
This plan would cut your monthly payout from the ten-year term certain significantly but would assure you of an income for life. After you die, your beneficiary receives no payments.