If you invested $1,000,000 in an S & P 500 Index fund in 1999, by 2005 you would have a value of $849,183.  If you were retiring in 2005, you would be less than pleased; at 6% your annual income would be $50,450.

We have mentioned the new versions of tax deferred retirement annuities before.  If you invested the same $1,000,000 in this type of contract in an S& P 500 fund, your account value would be about the same.  However, there are three contract features that change the picture.  First, each year, your “income account” is increased by 6%, regardless of investment performance.  So, your account in 2005 is worth $1,418,519.

Second, your retirement income is guaranteed at 6%, so your income is $85,111 per year.  This is more that 60% higher than in the first case. 

Third, no matter how long you drew income, your beneficiaries will still receive a benefit of $1,418,519!