An annuity is a contract between an individual and an insurance company. They’re long-term, tax-deferred investment vehicles designed for retirement purposes. In exchange for purchasing an annuity (either through a lump-sum payment or through periodic installments), the buyer receives a regular payment during retirement.
How to use annuities to create your own pension?
Corporate pensions are few and far between, and the debate over state government pensions continues to broil across the country. Entrepreneurs and other self-employed people also lack guaranteed retirement income. Those of us without a pension are looking for options.
We now have one.
While annuities still are not a perfect fit for every investor, today’s annuities can be used to create a retirement income stream that mirrors a pension. Depending on your overall financial situation and your desire for guaranteed retirement income, you may want to consider taking a lump sum from your savings to buy an annuity, which would give you regular payouts in retirement, just like a workplace pension.
Annuities shouldn’t make up your entire portfolio. But the investment may be a smart strategy for a portion of your savings.
How to Invest
- Start by consulting a trusted independent financial advisor — someone who does retirement planning — to see if the strategy will work with your overall financial goals and means.
- Take a detailed look at your retirement expenses and your income sources, such as Social Security. Next, look at all of your retirement savings as buckets — a short-term bucket for immediate needs and a long-term bucket for the future.
- Annuities are best utilized as part of a diversified plan to meet financial goals.
- Almost all annuities will allow you to take anywhere from 10 to 20 percent of your accumulated balance, without penalty, once per year.
- Consult Mintco Financial to review your retirement planning and see if an annuity would fit in your plan.