Buying an Annuity

A study from Sun, Triest, and Webb (2007) concluded that “taking a reverse mortgage in the form of a lifetime income, either at retirement or when financial wealth is exhausted, is preferable to taking a lump sum at age 65.”

They continue, “…An alternative to taking a lifetime income from a reverse mortgage is to take a lump sum and use that to purchase an immediate annuity from an insurance company…When a reverse mortgage is taken at older ages the strategy of applying the proceeds to the purchase of an immediate annuity yields a substantially higher income. Therefore, the dominant strategy for households is 22 probably to spend down their financial wealth, take a reverse mortgage, and use the proceeds to buy an annuity.”

An annuity provides a monthly stream of income with returns that are virtually risk-free, offers a potentially better yield than home price appreciation alone and is very tax efficient. But knowing which annuity to buy is the trick. And of course, as with any financial product, there are risks to consider with the benefits, like the risk of illiquidity since annuities are locked in. Read more…

Seniors Equity works with insurance and annuity experts. If using your home equity to finance an annuity makes sense for you, we will refer you to experts who will review the options with you and help you make an intelligent choice.

Important: This is general information, is not meant for every reader, and is not tax, insurance or investment advice. Seniors Equity is not an advisor on tax, insurance, and investments. If you need guidance on this topic, consult with a licensed financial, insurance, and tax advisor.