Guaranteed Lifetime Income (GLI) is a promise, typically made by an insurance company, to pay you an income for the rest of your life, no matter how long you live. With life expectancies increasing many Americans face the very real possibility of outliving their income.
So many people worry about dying too soon, but what happens if you live too long? For many this means running out of money. Planning for retirement is not easy when your life expectancy in retirement keeps increasing.
Retiring at 65 in this day and age means that there is a very good chance that you will have to budget for another 30 years where you will be working less, if at all. Pensions have become a thing of the past, and Social Security certainly won’t suffice to provide a living wage.
This is where Guaranteed Lifetime Income comes into play. This works almost exactly opposite of the way life insurance works. When purchasing life insurance you make regular payments to the insurance company until one day when the insurance company makes a large payment back to your beneficiaries.
With GLI you give the insurance company a specific sum and they, in return, promise to pay you regular payments. These payments can cease at your passing or be distributed in such a way to continue to your beneficiaries.
If you choose the later, to have your beneficiaries receive something when you pass, you will receive smaller income payments.
The payments that you receive will be made up of both interest and principal. What this means is that your payment will be partially made up of a return of your principal. This is important for several reasons:
Part of this income will be tax-free. Since the insurance company is giving you back the money you gave them this is not taxable.
Your income payments will be much greater than from a CD- with the added benefit that you will never lose this income.
If you chose to stop the income payments you will get back less than what you put in. The insurance company already gave you back some of your funds; they won’t give it to you again.
In the majority of cases the insurance company will be able to tell you how long you will have to receive payments in order to break even; to get back everything you put in.
Guaranteed Lifetime Income can make a substantial difference to your financial situation in retirement, but there are many things to consider. Carefully examine the proposal that the insurance company offers.