Guarantees in any form attract our attention. When they are associated with the words retirement income and life, they not only pique our interest, they literally force us to wonder if this is the sort of be-all-end-all investment. The simple answer: depends on who you are.
Mutual Of Omaha was the latest among the insurance industry to begin offering a Lifetime Guaranteed Income Account to investors. This is thinly veiled as something other than an insurance product but in fact, is an annuity of the lifetime guaranteed sort. Now annuities, it should be noted are probably an okay product for some folks. But the vast majority should steer clear, even if economists think otherwise.
The way these Lifetime Guaranteed Income Accounts work is really simple – and there is an allure in simplicity until, of course, the options get added. These products often offer about $650 a month on a $100k purchase (which leaves your heirs in the lurch should you die before the policy is fully used – and the insurance industry, being who they are, have calculated your last breath). Want to leave something for your spouse or guarantee they receive something if you should bail in the first ten years – it will cost you more.
The insurer argues that this sort of product can be had for less principal than would be needed in a portfolio (some suggest as much as 40% less) and because folks are skittish about making sure their assets provide at least a monthly income, they are far superior.
Keep in mind, they do not account for inflation (although you can purchase, for an additional cost, protection). Each time you customize the product, either the payout goes down or the cost goes up. Sales people are not fond of this product which is why you will see it begin to crop up inside your defined contribution plan.
It may be right for some high asset retirees, but the vast majority of Americans will not qualify and probably should avoid these products. Read more here and here.
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