7 Best Reasons to Buy an Annuity 2018
To put it in very simple terms, you buy an annuity, either with a series of payments or a lump sum, from an insurance company or financial institution.
They pay you or your beneficiaries either a lump sum or a series of payments in return.
7 Best Reasons you may need an Annuity
- Annuities are generally used by retirees or soon-to-be retirees to provide a consistent income stream, similar to Social Security or the withdrawals you make from your IRA or 401(k) during retirement.
- Often times people use annuity income to supplement their Social Security or other retirement savings payments.
- The appropriateness of an annuity for any individual owes quite a bit to the individual’s appetite for risk. The annuity represents one of the lowest risk assets.
- Many investors want market growth, but they are worried and want fixed instruments to protect them from the downside. Indexed annuities were designed to compete with CDs, not with the actual stock market.
- Annuities are for principal protection, life income, legacy, or for long-term care. If you don’t need one of those things, you don’t need an annuity.
- Buying an annuity seems like an elegant solution since it removes the risk of outliving one’s assets (what actuaries like to call “longevity risk”), it eliminates the hassle of making investing decisions after retiring and the income stream it provides is super safe.
- If a steady income is your primary motivation for making the investment, annuities can provide just that.
2018 Retirement Planning Annuity
Retirement investing for most people is primarily about generating a reliable flow of income. That’s exactly the mission of annuities – you turn a chunk of money over to an insurance company, which commits to paying you a set amount every month, every six months or annually until you die.
Why we hold bonds in a portfolio: To provide income and stability by hedging against stock market declines. Annuities do both of these things, with one additional advantage. Whereas bonds and bond funds will fall in price when interest rates rise, annuities remain unaffected. In a way, annuities are like permanent, super-safe, illiquid bonds.
Annuities cannot be depleted while you’re alive. So, really what you’re buying is longevity insurance. For some of your assets, especially on a registered basis, that’s a very rational decision.
Mintco Financial Retirement Planning
Many of life’s great journeys share something in common: they start with a thoughtful plan. Your financial journey is no different.
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