Saving for retirement is one of the greatest financial challenges facing Americans today. Company pension plans are a thing of the past, Social Security faces a questionable future, and 401(k) and IRA plans have maximum contribution levels that could limit your savings. With an annuity, you can benefit from tax-deferred savings and ensure that you have a guaranteed income in retirement. How Can an Annuity Help You? Do you know how much money you will need in retirement? Have you considered what could happen if you outlive your retirement savings?
No matter how well you plan, factors like inflation, tax hikes and increased medical expenses can potentially eat away at your retirement savings, forcing you to suffer a lower quality of life or rely on your family for financial support in your golden years. An annuity can help you avoid a future dilemma and safeguard your financial security by providing you with guaranteed income throughout retirement. In fact, you can structure an annuity to pay you for the rest of your life, even if you live to be 100. You can also use annuities to transfer wealth to the next generation while avoiding probate.
The demise of traditional pension plans means many retirees face the possibility of outliving their savings. Social Security is a safety net for most people, but it was never meant to be a full retirement plan. To make sure your money—and your lifestyle—will last as long as you do, consider purchasing a lifetime annuity. Think of an annuity as a do-it-yourself pension plan. You provide a lump sum of money to an insurance company and in return you get a guaranteed stream of regular payments for the rest of your life (or for some specified period).
The best part? There are no monthly premiums, and your annuity is guaranteed to never lose money. For a free annuity quote and personalized help with your retirement planning, simply fill out the form on the right. Our highly trained annuity specialists are happy to explain the options available to you, and help you find the right annuity to fit your income needs.
Types of Annuities
Broadly speaking, annuities come in two varieties: variable and fixed. Variable annuities include an investment component. If those investments do well, your payments will grow over time and your nest egg will be sheltered from inflation. Fees for variable annuities can be high, but they can be the right choice during periods when low interest rates make fixed annuities unattractive.
A fixed annuity is simpler. Your lump-sum savings are translated into a stream of payments that does not change. The size of your payment is based on your age, prevailing interest rates, and, to a certain degree, your gender (women live longer so their payouts are smaller).
Some companies will allow you to customize an annuity agreement in certain ways at the time of purchase, such as by adding a cost-of-living rider or arranging for payments to continue until both you and your spouse die. Ideally, you should commit only a portion of your retirement savings to an annuity and keep the rest in other types of investments, such as stocks and bonds that can grow over time and protect you from inflation. Having an annuity can give you the freedom to be a little bit more aggressive in your investment accounts, knowing you have a steady source of income to fall back on. If you decide later you want to increase your guaranteed payments, you can take an additional portion of your savings and put it into another annuity. Keep in mind that annuities are not for everyone, and it is always wisest to sit down with your financial advisor who can guide you through the process and help you choose what’s best for your risk tolerance and retirement timeline.
This annuity contract earns a stated interest rate (fixed interest rate) offered by the insurance company. Alternatively, the interest rate may be calculated in a manner specified in the annuity contract. No matter how the interest rate is calculated, the investor knows exactly what the future returns or income stream the annuity contract will produce because the applicable rates are set at the time of purchase and never change.
Simply stated, fixed annuities are guaranteed lifetime income. Those planning for retirement are facing difficult times after the sting of stock market losses, reduced or canceled dividend payouts, and financial market uncertainty affecting corporate and government bonds. A guaranteed lifetime income is a secure, guaranteed, and smart investment for your money.
This is an offshoot of a fixed annuity where the interest rate is based on an outside index such as a stock market index like the S&P 500 or the Dow Industrial Index. The annuity pays a base return rate, such as 3%, but the returns may be higher if the index returns greater than the base return rate.
An equity index annuity guarantees a minimum interest rate if held to the end of the surrender term and protects against a loss of principal. This is a smart choice for an annuity, and returns may be higher than fixed instruments such as CDs, money market accounts, and bonds. Equity Index Annuities are insured by the State Guarantee Fund which is similar to the insurance provided by the FDIC.
It may seem counterintuitive that empty nesters or retirees need life insurance, but some still have dependents, such as disabled adult children. Many also still have financial obligations, such as the mortgage on a home or second home, that could become a burden if a spouse died or becomes disabled. More importantly, if you died today, your spouse could outlive you by decades. Would they have to make drastic lifestyle changes to make ends meet? Your death could reduce the Social Security benefits they’d been counting on. It could also bring unplanned medical and funeral expenses.
Life insurance coverage can preserve the retirement plan you worked so hard to put in place and ensure your estate will be passed on, intact, to your survivors. A policy’s death benefit can help foot the estate tax bill from Uncle Sam and provide a legacy for your children and grandchildren, even if you use up most of your assets during your lifetime. For all these reasons, if you’ve been thinking about dropping your life insurance coverage, you may want to reconsider.
What if you’re retired or nearing retirement and you don’t have life insurance? You may think that you’ll no longer qualify due to your age or health conditions you may have. That’s not necessarily the case. Final expense insurance is a form of life insurance that requires little or no underwriting, which means almost anyone can qualify. Policies are available in face amounts typically ranging from several thousand dollars up to a maximum of $50,000 or $75,000—much less than a standard life insurance policy. That’s because these policies are only intended to cover final expenses and not longer-range expenses like ongoing living costs or college and retirement funding.
Final expense insurance typically comes in two varieties. Immediate full benefit policies, which pay the full face value upon your death, are generally available to people with no serious health concerns. Graded benefit policies provide limited benefits during the first few years and are available to people with serious health concerns. These policies can provide the peace of mind of knowing that your survivors won’t struggle to pay for your funeral or be saddled with outstanding medical bills and other debts.