Another recent development is the deferred income/longevity annuity, for which a client pays an upfront lump sum in exchange for monthly lifetime income at a future date, said actuary Scott Witt, a New Berlin, Wisconsin-based fee-only insurance advisor who does not sell any products. A typical scenario would be a 65-year-old who wishes to set up payments beginning at age 85.
"These products are in the infant stage still," said Witt. "There are some out there, but the market is not deep.
"This product is quite effective at addressing the risk of living too long," he said. "It can help change the financial-planning exercise from one with an uncertain endpoint to one with a goal of making it to age 85, or whenever the longevity annuity kicks in."
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In contrast are immediate fixed-income annuities, such as SPIA, single-premium immediate annuities, which provide fixed income to an individual or couple for their lifetimes or for a certain period of time. These can be used as supplemental income in times of shortfall or as a "bridge" for those who decide to retire before they claim Social Security or other retirement funds, said Mindy Cleaveland, certified financial planner with Modera Wealth Management in Westwood, New Jersey.
"This income bridge allows them to withdraw less from their investments early on and to maximize their future income," she said. "It is also possible to add features to the SPIA to ensure there is return of unused principle to a beneficiary or provide a cost-of-living adjustment annually."