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Annuities as a Retirement Income Planning Tool


As physicians near retirement, they often wonder how they can turn the nest eggs they've accumulated into income for the rest of their lives. For some, annuities may be the answer.

As physicians near retirement, they often wonder, “How do I turn the nest egg I’ve accumulated into income for the rest of my life?”

An important part of the answer for many may be annuities.

Many physicians are familiar with fixed and variable annuities when they’re working and building their nest egg during their wealth accumulation phase. Annuities are investment vehicles that can potentially become key income generators during retirement. In retirement, you’ll be looking for income rather than investment returns and, when framed in this fashion, annuities can have important positive attributes.

Two types of annuities—immediate and deferred income—are used during retirement as an income stream.

Immediate annuities

These are structured as a lump sum payment to an insurance company, which, in return, sends monthly income to you for life or a specific period of your choosing.

To give a hypothetical example of the 100% joint and survivor payment option, assume a couple, both of whom are age 65. They enter retirement with $4 million in investments and believe at least one of them will live to age 95. They decide to use $1 million to purchase an immediate annuity. With these assumptions, they can expect to receive $56,000 per year*, or $4,700 per month, as long as one of them is alive.

Deferred income annuities

Similar to immediate annuities (in that you turn a lump sum over to the insurance company) but, instead, you elect to begin receiving the stream of payments at some future date.

In this scenario, the same couple purchases a $500,000 deferred income annuity and they wish to start the annuity payments at age 80 so that they are certain to have an income stream they cannot outlive. They give the insurance company $500,000 today, and, in return, the insurance company will start sending $96,000 per year*, or $8,000 per month, when they are 80 and will continue as long as one of them is alive.

Joint and survivor is just one of several payment options available. Other common options include:

Fixed period

You elect how many years you would like to receive payment, and the insurance company will calculate the amount of your payments.

Fixed amount

You choose the amount of each payment, and the insurance company will calculate how long the payments last.


You will receive payment for the remainder of your life.

Life with period certain

Payments will be received for life, or if you should die before a certain period, say 10 or 15 years, your beneficiary will receive the payments until the end of the 10- or 15-year period.

Life with refund

Payments will be received for life or, if you die before receiving an amount equal to the original premium, the difference between the original premium and the amount paid will be paid as a lump sum to the beneficiary.

If considering the addition of annuities to your retirement plan, it’s important to consider annuities strengths and weaknesses. What follows are a few commonly understood advantages and disadvantages of annuities.


One cannot outlive the income stream of a lifetime annuity.

Recent research in the Journal of Financial Planning shows annuities make the most sense for individuals who believe they are likely to outlive 70% of their age cohort. If you have reason to believe you or your spouse could live into your 90s, annuities could likely be part of your retirement income plan.

Immediate and deferred income annuities can provide protection against market downturns

You’ve transferred the risk to the insurance company to figure out how to send you that income no matter what happens in the markets.

Immediate and deferred income annuities are not an “all or nothing” option.

You might choose to annuitize sums of money and purchase annuities at different ages. The older you are when you start the annuity payment, the higher the monthly payout as your life expectancy is less actuarially.

Annuity payouts tend to be larger during periods of higher interest rates so now is likely not an ideal time to annuitize a large portion of your nest egg. For example, if you have $3 million at retirement, it may make sense to annuitize only $1 million. You could turn it over to an insurance company or companies, possibly at various ages, in return for a stream of income that you and your spouse cannot outlive. The other $2 million could be invested and used to also generate potential income.


Your income stream from annuities is not usually tied to inflation

If you receive $30,000 in 2014 from your annuity, that same $30,000 won't buy as much in 2024 or 2034 and may, in fact, buy much less. Inflation is the enemy of annuities.

The low inflation rates that we’re currently seeing mean that your income is not losing purchasing power at a rapid rate, but if we were to experience high rates of inflation during your retirement years, your annuity payments might quickly lose purchasing power.

You may be giving up ownership and control of your lump sum payments

With an annuity, you're turning over a lump sum to an insurance company in return for a stream of payments. The lump sum you used to purchase the annuity is money that, depending on what payout option you choose, may not be passed on to future generations or used for unexpected occurrences.

Immediate and deferred income annuities can play an important role in retirement planning for many physicians. It’s important to remember that with annuities, as with any other financial products, there are no one-size-fits-all solutions. By taking time to assess your unique financial situation, one can potentially turn a nest egg of savings into retirement income that lasts throughout retirement.

*Subject to change depending on the contract’s date of purchase as interest rates and mortality rate assumptions are adjusted over time.

Joel Greenwald, MD, CFP, is a physician-turned financial planner who exclusively provides financial advice to doctors. He has written many articles and been a frequent speaker on how physicians and dentists can achieve long-term financial security. More about Joel Greenwald and his Minnesota-based firm, Greenwald Wealth Management, can be found at

This communication is strictly intended for individuals residing in the states of (CA, FL, MN, NY, OH, PA, SD, WI). No offers may be made or accepted from any resident outside these states due to various state requirements and registration requirements regarding investment products and services. Securities and advisory services offered through Commonwealth Financial Network,, a Registered Investment Adviser. Fixed insurance products and services offered by Greenwald Wealth Management, 1660 South Highway 100, Suite 270, St. Louis Park, MN. (952) 641-7595.

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