Cashable Annuity

A cashable annuity gives middle-aged Baby Boomers an additional option for their inherited money. Baby Boomer clients are those born in the prosperous late war years, the 1940s and the 1950s, who have more recently been named the Wealth Generation.

A recent study done by Boston College, USA, states that Baby Boomers will likely inherit $8.4 trillion USD over their lifetimes – on average, $64,000 USD per family. They primarily receive their inheritances from their parents; grandparents are the second most common source of inherited money.

A payout annuity is one option for a portion of the inherited funds as they are stable, reliable and now they’re cashable. A cashable annuity is also called a non-prescribed annuity, as the income is taxable in the year it is earned, regardless of the amount paid as income. The taxable income portion is higher in the early years and declines over time. Think of a cashable annuity as a mortgage payment where in the early years the interest portion of each payment is high and the amount of principal payment is low. As each payment includes some principal, the interest earned over time gets lower and lower!

The cashable accrued annuity has a few unique features:

1.       Guarantees that extend beyond age 91.

2.       Payments indexed to help keep up with inflation.

3.       Policy owners do not have to be the owners

4.       Joint annuitants with someone other than your spouse, i.e. children, siblings, etc.

5.       Deferred annuities.

6.       Cashable – may receive a lump sum instead of continuing payments.

The cashable annuity is an option for those investors who are uncomfortable paying upfront for an annuity because they feel like they’re losing access to their money. The cashable annuity, which is subject to accrual taxation, has a cash value before the end of the guarantee period. They provide a solution to clients’ concerns about the lack of liquidity with payout annuities.