Annuities

 

If you want the simplicity and discipline of monthly income from the SIS Pension Plan, an annuity might be for you.  With an annuity, you use some or all of your SIS Pension money to purchase a contract from an insurance company.  In return for the purchase price of the annuity (what ever amount of money you want to give them, up to 100% of your account), they will guarantee to provide you with a monthly income for the length of the contract.  You can choose an annuity contact that pays for an exact number of months (years) like seven years or 25 years, or you can get payments for as long as you live (life annuity) or even as for as long as you and your spouse live.  If you choose a life annuity, you can choose how much benefit is to continue to your survivor: 50%, 66 2/3%, 75 % or 100%.  Of course, the longer the insurance company expects they will have to pay under the annuity contract, the lower the monthly payment will be. 

 

Married individuals – In the application process, your spouse must agree to give up the 50% survivor annuity benefit in order to receive a different form of annuity benefit. 

 

What you get from an annuity is the assurance that your money will not run out – you will receive payments for as long as you live (assuming you choose a life annuity).  To get that assurance, you will lose the flexibility the SIS Pension Fund can provide.  Choosing an annuity is a big decision – one that is not right for many.  You already have the assurance of lifetime monthly income from the NASI Pension Fund and from Social Security.  Life is uncertain.  Unexpected expenses can crop up.  Having money in the SIS Pension Fund or even an IRA gives you flexibility to withdraw a chunk to handle the unexpected.  You may even find that you are not spending as much as you thought.  An annuity is going to pay you money even if you don’t need it now.  If you find that you don’t need as much from income for a period of time as you thought you would, it might be nice to simply leave that money in the SIS Pension Fund where it is invested until you do want to withdraw it.  You lose flexibility with an annuity. 

 

An annuity is closely tied to the interest rate on the day you purchase the annuity.  If interest rates are low, the amount of your monthly payment will be low for the rest of your life.  You will lose the possibility of higher interest rates or higher investment returns from stock or real estate investments if you purchase an annuity.  Think long and hard before you lock up your SIS Pension Fund money in an annuity.

 

If you want to turn your SIS Pension Fund into monthly income, consider the installment option available from the SIS Pension Plan.

 

Taxation of Annuity Payments

 

Money you receive from the SIS Pension Fund is taxable as ordinary income in the year you receive the money.

 

Pitfalls of Annuities

 

1)                 You lose the flexibility of the SIS Pension Fund.  Once the annuity contract is purchased, you cannot change your mind.

2)                 You are making a bet on the interest rates on the day you purchase the annuity.  You have no opportunity for a greater investment return over the life of the annuity.

 

Internal  Links

 

Back to Benefit Options Available from the SIS Pension Plan

Back to Planning for Retirement

 

External Links

 

Investopedia – Annuity