Why an Annuity Should Be Part of Your Retirement Plan
Planning for a comfortable retirement requires a multi-pronged financial plan, one that goes beyond the usual 401ks or traditional and Roth IRAs. You may have already maxed out on these financial plans and need an alternative to grow your savings and receive a lifetime income. You should be able to retire when you are ready and not have to work extra years to be financially secure. An annuity can help give you this security when paired with other financial strategies.
Annuities are safe and carefully regulated products. The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) oversee annuities and only authorized agents and brokers who hold a state-issued life insurance license may sell them.
What Is an Annuity?
At its heart, an annuity is an insurance contract that provides a guaranteed income. Clients most often choose an annuity to provide retirement benefits, but anyone with money to invest can use these financial products to ensure a long-lasting or lifetime income.
Annuities have two main phases: the accumulation phase and the payout phase. You can choose to fund your annuity by paying in a lump sum or by making periodic payments. Once you have reached your funding goal, known as the end of the annuitization phase, the annuity begins to payout for a fixed period or for the rest of your life. These contracts offer you some flexibility in how you invest and receive funds.
What Are the Types of Annuities?
Annuities come in several forms that offer different pay-in and payout structures. Your insurance agent will advise you on which type of annuity is appropriate for you based on the amount you want to invest, your age, and your financial goals. Your choices include fixed annuities, indexed annuities, deferred annuities, and immediate annuities.
If you prefer a steady, predictable income, a fixed annuity may be for you. A fixed annuity offers a guaranteed interest rate on your contributions during the accumulation phase. When you, the annuitant, are ready to receive income from the annuity, the insurance company will determine the size of your payments according to the amount of money in your account, your age, how long your payments will continue, etc. Depending on what conditions you choose, the payout phase may last for a set period or for the rest of your life.
If you want the opportunity to earn more on your money, an indexed annuity may be for you. This product is tied to a specific market index, such as the S&P 500, so you might earn a higher rate of interest depending on the financial market’s performance. However, the annuity may limit the amount of your gains by imposing an 80% or other participation rates instead of allowing you 100% of the market gain.
A deferred annuity is like many retirement accounts because it begins to pay out at some future date, often at age 65 or 70. You can defer both fixed and indexed annuities to provide you with the extra money you need for a comfortable retirement or another period in your life.
Annuities are not just retirement funds, however. You may choose an immediate annuity if you have a lump sum to invest but want ongoing payments now and not later. It is a simple way to protect the bulk of your money while still receiving ongoing funding. Once you have set up an immediate annuity, you will begin quickly receiving monthly, quarterly or annual payments.
Your heirs can also benefit from your annuity. Although regular payouts end with the death of the annuitant, any remaining funds can go to a beneficiary. The IRS will tax an inherited annuity depending on several factors, including if the surviving spouse is the beneficiary. This death benefit protects what remains of your funds.
Who Should Have an Annuity?
Anyone with a certain level of funds to invest can choose an annuity. They are most useful to people who are planning to retire in the next 10-15 years or anyone earning 150 thousand or more each year. An annuity will serve you well if you have maxed out on your 401K contributions or those of your traditional or Roth IRA.
You may also consider an annuity if you have come into an inheritance, won money through a lottery, or otherwise received a large sum of money. Annuities are excellent for providing a guaranteed cash flow that allows you to gain financial security by protecting the bulk of your funds.
How Should You Choose Your Annuity?
At Begus Insurance Group, we offer expert advice on all types of insurance products, including annuities. When you consult with us, we will listen to your financial goals and help you decide if an annuity is a good choice for you and your family. If you choose an annuity, we can help you decide which type will establish the financial security you want and need. Annuities can be part of sensible retirement and long-term financial planning. Consult with us today for more information on these insurance products.