In these uncertain days you may have heard about buying an annuity for your retirement is a safe way to insure an income for your retirement that is guaranteed to live as long as you do, or even longer. There are many kinds of annuities and we at Safe-MoneyPlan.com want to make sure you are knowledgeable about what annuities are and which one is right for you.
What is an Annuity?
An annuity is an agreement between you and an insurance company to cover your specific goals. These can be things such as principal protection, a lifetime income, legacy planning or even the cost of long-term care. Though annuities have been around for millennia, in their modern form they became popular during the Great Depression as an alternative to stock market volatility. With the elimination of pension plans investors are looking to annuities to replace their lost pensions. Annuities supply you with a guaranteed income from your investment at regular intervals.
Why Should I Buy and Annuity?
This question has a different answer for each of us, but an annuity is like your own private Social Security program that you choose how it is paid out and it is a guaranteed income for the rest of your life, no matter how long you live. Having this kind of reassurance is nice to know and thus makes annuities very popular for retirement.
For some annuities are a way to shelter income from taxes if you have maxed out your IRA or 401K, others use an IRA as a primary investment that is low risk, and then they will use some other money in a more risky and aggressive way. Others still are changing jobs and need to roll over their 401Ks to a new investment and an annuity is a great option for this circumstance.
How Exactly Does an Annuity Work?
An annuity transfers risk from you to the insurance company.Similar to other types of insurance, you pay the insurance company premiums, they can be a single lump sum or a series of payments, these depend on the type of annuity you choose.This premium-paying period is known as an“accumulation phase”. You don’t pay annuity premiums indefinitely, at some point, you stop paying the annuity, and the annuity starts paying you. This is called the “payout phase”.
In this example your accumulation phase, is where premiums are paid from age 55 to 64,and the payout phase is where you receive a guaranteed payment from 65 onwards.
Annuity payments have great flexibility, they can trigger payments for your lifetime(like in our example), they can be a fixed number of years to you or your heirs, continue until both you and your spouse have passed away, or they can be a special situation minimum number of years guaranteed continued payout called “period certain”. This way it will pay you income for your life(no matter how long you live), but if you die during a specified time frame(say before age 90), those “period certain years”, the annuity will continue to pay your beneficiary the remaining guaranteed payments for your desired contract period(until you would have been 90).
The younger you are when you choose to start receiving income, the longer your life expectancy is, or the longer the period certain term is, therefore the smaller your payments will be. You can choose to make your payments during the accumulation phase monthly, quarterly, annual, or even a single lump sum(this can be with a 401K rollover or lottery winnings or the sale of a home). You can choose to have your payout phase start immediately or it can be postponed for years, and even decades.
To first two questions you must ask yourself to decide which annuity is right for you is:
- What do you want the money to contractually do?
- Are you the only one needing the payouts or does your spouse and beneficiaries need continued protection after you pass?
- When do you want those contractual guarantees to begin?
- Do you want the money to begin paying now or can you put that off until the future?
Once you have answered these two primary questions for yourself your next step is then finding the right annuity to match these needs for you.
Our trusted Advisor Joseph Uppleger at SafeMoney-Annuity.com is here to help you with this process he can answer all of your questions as well as work with you to develop the ultimate annuity investment solution for you.
