Schwab Intelligent Income vs Immediate Annuity: Which Is Better?

November 09, 2021 at 10:10 AM EST

Annuity produces more guaranteed lifetime income; Schwab plan is more flexible

MEDFORD, OR / ACCESSWIRE / November 9, 2021 / Charles Schwab & Company's Schwab Intelligent Income ™ promises monthly income from a regularly rebalanced portfolio of diversified ETFs plus a cash account. How does this newest strategy to generate retirement income stack up against a single-premium immediate annuity, or SPIA, which can provide a guaranteed income for a lifetime?

"Schwab Intelligent Income and the immediate annuity each has its pros and cons, but I believe that the annuity comes out ahead overall," says retirement income expert Ken Nuss. "Since I make my living selling annuities via a long-established website, it's not surprising I'd believe that, but I have good reasons."

Immediate annuity: more guaranteed lifetime income

The biggest advantage is that an immediate annuity will provide more income and is guaranteed to continue unchanged for your lifetime no matter how long you live. The Schwab plan provides less income. "And you have a significant risk of running out of money if you live to a very old age," Nuss says.

With the Schwab program, you retain control over your money and portfolio, unless you eventually exhaust your funds. With an immediate annuity, you turn over your money to an insurance company in exchange for a stream of guaranteed income. This type of annuity typically has no cash withdrawal value.

Schwab also provides more flexibility. You can choose your asset allocation anywhere from conservative, with very little in equities to aggressive, with a larger percentage in equities. You may also start, stop or change the withdrawal amount.

Additionally, if markets do better than expected, you have the potential for long-term portfolio gains. There also might be some tax benefits via tax-loss harvesting and long-term capital gains. These potential benefits are difficult to quantify, however.

The Schwab program has significant cons. Along with the potential for long-term gains, there's the risk of short- and long-term downturns in the stock and bond markets. Related to this is market-timing risk: investing your money just before a market downturn and then exacerbating the problem by continuing to take monthly withdrawals from a depleted portfolio. That could make it difficult to recoup losses and could result in eventually depleting your funds.

There are some cons to an immediate annuity. You're relying on the long-term financial solvency of the issuing insurance company, so it's wise to choose carefully. State guaranty associations insure consumers up to certain limits in the unlikely event that the insurance company fails.

An immediate annuity is less flexible than the Schwab program. You can't start, stop or change the payment amount or term.

Why an annuity comes out ahead

"But these cons are more than offset by the fact that an annuity pays more income than the Schwab plan, and that income is guaranteed to last a lifetime," Nuss says.

The insurance aspect of the annuity provides this unique advantage. Even after the insurer has repaid your entire principal, your income will continue at the same level, even if you live to 95 or 105.

Additionally, an annuity is simple. You set it and forget it. It's also tax-advantaged because each payment includes both non-taxable return of principal and taxable interest until the principal has been repaid. This assumes you're using nonqualified funds-not an annuity in an IRA or other tax-deferred retirement plan.

An immediate annuity offers options. It can cover a single person or a married couple. With the latter, if it's a lifetime annuity, which most people choose, the payments will continue as long as either spouse is living.

Nuss recently published an article with detailed comparisons of how much income an annuity produces versus the Schwab program and the risks of running out of money. It can be read at Newsmax.

AnnuityAdvantage offers a free immediate income annuity and deferred income annuity quote comparison services showing the highest payouts available.

Annuity expert Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and income annuities. He launched the AnnuityAdvantage website in 1999 to help people looking for their best options in principal-protected annuities. He writes on retirement income and annuities regularly for several leading financial websites. A free quote comparison service with interest rates from dozens of insurers is available at https://www.annuityadvantage.com or by calling (800) 239-0356.

Media contact: Henry Stimpson
henry@stimpsoncommunications.com

SOURCE: AnnuityAdvantage

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