When deciding what size immediate annuity to purchase, it helps to think about what your goals are. Do you want to generate a specific amount of income in retirement? Or, are you simply looking to diversify with a portion of your retirement assets.
Let’s dive deeper into your goals to arrive at the right immediate annuity size for you:
Generating Retirement Income
If you’re buying a Single Premium Immediate Annuity (SPIA) to cover your expenses in retirement, you’ll need to calculate your income gap. How much money do you plan to spend monthly or annually? And, how much income do you already have coming in, such as from Social Security, a pension, a rental property, etc? If your expenses are greater than your income, you have an income gap that could be funded with an immediate annuity. In this case, you’ll want to use the SPIA Quote Tool to solve for the SPIA size that’ll cover your income gap. You’ll probably see that covering your entire income gap with a SPIA can be quite costly, especially if you’re relatively young. You have two basic options. First, you could simply decide you don’t want to fill your entire income gap and resort to the withdrawal of assets for some of your retirement spending. Your other option would be to purchase a Deferred Income Annuity. Payouts go up if you choose to defer the income start date, rather than start immediately.
Diversifying Your Portfolio
Estimates vary, but many experts believe diversifying a portion of your fixed income portfolio with an income annuity is an effective way to pool longevity risk and protect against a sharp market decline. Your exact allocation to an immediate annuity will depend on your age, asset level, and risk tolerance, among other factors.
Blueprint Income is here to assist you if you need help performing a spending analysis, determining your income gap, and/or deciding how much you want to contribute to your immediate annuity.
Head to the SPIA Guide to learn more about the product, how it works, and whether it makes sense for your retirement.