Why Investors Should Consider Annuities
Annuities offer big benefits to investors planning their retirement. They can supplement your retirement nest egg and guarantee a steady stream of income throughout your life.
Many people misunderstand the concept of an annuity, regarding it as an income-maximizing strategy, due to which they fail to tap into its benefits. In fact, an annuity is an effective risk-management tool, helping to secure you against unforeseen circumstances and building a reliable pool of funds for retirement.
Why You Should Consider and Value Annuities?
Here are some reasons to consider annuities as part of your retirement planning strategy:
- Annuities offer security of payment. If your goal is focused on certainty of income, you should consider taking out an annuity plan. In return for an investment into the annuity, you will receive a lump sum payment or a series of scheduled payouts over a predetermined period.
- If you don’t already have a guaranteed source of income, annuities are a great way to supplement your retirement income. Many American investors receive about half of their retirement funds through Social Security. Using your own portfolio for your retirement fund gives you better candidacy for “annuitization”, rather than if you rely on other income products, such as Social Security benefits.
- Annuities pay out more the longer you live. So, if your family has a history of longevity, you’re better off taking out an annuity.
- If you want to annuitize your income, delay collecting Social Security benefits. By delaying the distribution of your Social Security benefits as long as possible, you can receive a higher payout, in a similar manner to taking an annuity from a private insurance firm.
Types of Annuities
Here are the different types of annuities available to investors:
- Single Premium Immediate Annuity – Here, the payment amount is fixed and you start receiving income as soon as you invest in the annuity.
- Deferred Income Annuity – Also called a longevity annuity, under which you receive a guaranteed income throughout your life, with payments starting at a fixed date in the future. Payment may sometimes be deferred up to 40 years.
- Variable Annuity – This offers access to market growth, with payments dependent upon the annuity’s market performance. You have the option to make minimum withdrawals from the invested sum without the need to annuitize your investment. The amount you can withdraw is based on a certain percentage of your total investment, and this annuity comes with a guaranteed lifetime withdrawal benefit.
All three types of annuities may be potentially suited to your needs, but you need to evaluate how best to align your annuity plan with your overall retirement planning. The key lies in understanding how annuities work, before you make a decision. Don’t pick the first one you come across; look around and assess your options to ensure you get the best deal.
Remember, the benefits your annuity plan brings you and/or your beneficiaries will be largely dependent on your unique financial situation, and an independent financial advisor like LifeCentra can help you make the right choice.