Mr. Jones knows that her employer chose Fidelity to manage the company sponsored retirement plans because it fits the employers’ needs, not necessarily because it fits the employee’s needs. Many 401(k) plans and some pension plans allow for the retiree to take the lump sum option. In most cases, this money has never been taxed so it is important to rely on a trusted financial professional to assist with the “qualified rollover.” If Mr. Jones takes the lump sum himself, could lose 50% to income tax immediately. The Internal Revenue Service has specific rules for retirement plans. Using a financial professional to assist with the transfer is a wise move.

On Monday, Mr. Jones buys a ticket from the Texas Lottery, winning $200,000,000. But, on Tuesday, the announcement has changed to $50,000,000. Why is he getting so much less? What happened to the rest of the money? Again, it has to do with an immediate annuity. The original, higher amount is total income over Ricky’s lifetime, from an Aviva lifetime income annuity, for example, that he was offered. The smaller amount refers to the lump sum option which he chose so that he could shop around for a different immediate annuity with a higher payout, a higher monthly income.

Every annuity includes this caveat “Dependent upon the claim paying ability of the insurance company.” The insurance company’s financial strength and its ability to continue to make payments long into the future are crucial. The Pension Benefit & Guaranty Corporation also guarantees pension payments but there exceptions and rules for different industries that may change the monthly payment years later.

Mr. and Mrs. Jones each compare a few insurance companies and their financial strength relying on the organizations that rate insurance companies: A. M. Best Company, Standard & Poor, Moody’s, and Fitch. Many of the strongest insurance companies have been around for over 100 years, but there are also situations, however unusual, when even a highly rated insurance company may suffer financial difficulties. Then, they ask insurance agents for proposals on their immediate annuities. With all the facts before Mrs. Jones, the insurance companies’ names, their financial strength, and their proposals, she has many choices, instead of taking the first annuity offered. With the right immediate annuity, Ricky creates his own personal pension, a guaranteed lifetime income.

Learn more about annuities on our site or to get a free consultation visit our online annuity form