5 Reasons Why Annuities Without Cash Value Is Best

Published March 7, 2018
Annuities without cash value, a.k.a. income annuities, offer you protection from running out of money by providing guaranteed retirement income. These are the 5 reasons why income annuities are the best option for your retirement plan.
  • Blueprint Income chooses to use annuities without cash value, a.k.a. income annuities, for the Personal Pension
  • Annuities without cash value provide more guaranteed income for the same premium as annuities with cash value
  • An income annuity should only be a piece of your retirement strategy; the money you need to access for emergencies should be kept elsewhere

To provide retirement security — which is quite hard to achieve since employers got rid of pensions — we use annuities. These are insurance contracts offering lifelong retirement income. But, we’re very selective with the annuities we choose for the Personal Pension. In fact, we do not use the more common annuities that make up 75% of what’s sold today.

Instead, we only use annuities without cash value. They’re called income annuities. And they’re the best way to get what you need from an annuity: protection from running out of money. Here are 5 reasons why an annuity without cash value is best.

1. You Get More Income

If you’re looking for guaranteed retirement income, then you should choose the annuity that gives you the most income. And, because all they do is offer income, income annuities will give you more income than their counterparts with cash value, namely fixed indexed and variable annuities. To cite a specific example, let’s look at Wesley, a 45-year-old preparing for retirement. He recently received a bequest of $100,000 that he wants to put towards a retirement annuity. If he chooses a plain-vanilla income annuity, that’ll get him $19,557 per year starting at age 70. But, if he chooses a fixed indexed annuity from the same insurer, he’ll get 44% less, or $10,995 per year.

annuities without cash value

2. It’s Fully Guaranteed

Insurance is for guarantees. And, that works best if you know exactly what you’re going to get out of it the moment you put something in. With cash value annuities, you don’t know for sure what you’re going to get, leaving you wondering whether you made the right choice for decades.

At Blueprint Income, we only work with annuities that are fully guaranteed. This, of course, is subject to the claims-paying ability of the insurer, which is why we only work with income annuities that providing ratings of A or better. And it also means there are no complicated formulas, participation fees, caps, spreads, maintenance & expense charges, etc. There’s just the amount you put in, and the amount the insurer promises on the other end. With contracts like this, you don’t have buyer’s remorse or spend the rest of your life wondering whether you made the right choice.

3. It Should Only Be a Piece of Your Retirement

Other types of annuities exist to provide not just income, but also cash liquidity (the ability to surrender or withdraw) and upside potential (ability to benefit if the market does well). These are known as fixed indexed and variable annuities. But, as we know from 2-in-1 shampoo+conditioner, all-in-one solutions rarely work. Instead of going for an all-in-one, define your goals for retirement and choose the approaches that do the best job meeting that goal. For all of the following goals, the cash value + income annuities are an inferior solution:

  1. Generating Income — You need some income in retirement that’s dependable. And, you can get the most guaranteed income with a standard income annuity.
  2. Market Upside — You want to grow your assets. With the money you’re okay taking risk with, a low cost index fund should give you the best access to upside.
  3. Maintaining Some Liquidity — You need access to your funds in case of emergency. That money should be easy to access and stable, such as in a money market fund.

4. It Prevents You from Making Bad Decisions

Did you know that more than 25% of people take early withdrawals from their 401(k)s, paying a 10% IRS penalty? Having access to your retirement savings like that often causes us to make bad decisions. And, having an annuity with cash value is no different. If we have the ability to withdraw from our retirement savings, then we might actually do it. But if this money is for retirement, then you shouldn’t. So, an annuity without cash value saves you from yourself.

5. It Does What No Market-Based Investment Can

Neither stocks or bonds prevent you from outliving your money because they provide no promises of the money lasting as long as you’re alive. In addition, pure income annuities without cash value (which is what the Personal Pension is made up of) are fully protected from market risk. In a choppy market or recession, you’ll feel more secure (and be less likely to make rash decisions) knowing that the amount you’ve been promised is exactly what you’ll get.

The Three-Legged Stool

There’s an old retirement adage about the three-legged stool. The first leg is Social Security, the second is pensions, and the third is personal savings. Today, the second leg of the stool is broken, and thus all of our retirements are wobbly and unstable.

annuities without cash value

It’s this leg of the stool that we’re trying to repair at Blueprint Income. Using the simplest, lowest cost, most guaranteed annuities, we’ve built the Personal Pension. And the annuities we’ve chosen — namely those without cash value — provide something that looks the most like a pension. It’s all about the income, it’s guaranteed, it is a piece of your retirement, and it prevents you from making bad decisions.

How Can I Start a Personal Pension?

A Personal Pension is a contract between you and top rated insurance companies. By making contributions to your Personal Pension over time, you develop a portfolio of guaranteed annuity income available in retirement. Blueprint Income offers a Personal Pension account with the lowest minimum, $5,000. After opening an account, you can make subsequent contributions of as little as $100, each of which will increase your pension check.

Here you can see what contributing to a Personal Pension will guarantee you in annuity retirement income. After just a few years in retirement, you’ll have recouped your initial investment, and the rest will be profit.

You can continue with the enrollment process on your own or fill out the information to have one of our specialists follow up with you by starting with the Personal Pension Builder, where you’ll be able to set a goal for how to grow your pension over time. Note that all future contributions are optional, but it’s always great to have a goal.

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Lauren Minches

Lauren Minches

Financial Planning Professional

Lauren is an actuary by training with expertise in retirement, finance, and risk. She writes about annuities to make them easier to understand and evaluate. Her goal is to help people create retirements with more time for living and less time thinking about money.