Best Retirement Planning using Annuities in 2021
Best Retirement Planning using Annuities in 2021
What is an Annuity?
Annuity means a stream of income payments.
Sounds great? Who doesn’t want a stream of money coming into your account every month? But like every other benefit, you must ask, “What is the price I pay to receive this income stream?”
A financial annuity is an investment product which can make retirement more comfortable by generating an income stream, or increase/protect your savings.
Unless you win the lottery (which is less likely than getting hit by lightning) , in order to receive the income stream, you need to fund the annuity. Here are the ways you can fund the annuity.
Pay the issuer of the annuity-usually an insurance company:
- With a lump sum one-time payment.
2. Regular salary transfers to the issuer.
3. Several lump sum payments.
Types of Annuities – Best Retirement Planning using Annuities in 2021
Annuities get complex fast. While all annuities share certain features, such as tax-deferred growth and guaranteed payments for some amount of time, there are a few varieties to be aware of:
- Fixed annuities offer investors a guaranteed payment based on their contributions, regardless of how financial markets perform.
- Variable annuities allow investors to potentially increase their guaranteed payment by choosing market investments inside the annuity, much like you might choose funds in a 401(k). This introduces an element of risk, however, and unlike a fixed annuity, it’s possible to lose money with a variable annuity.
- Index annuities—also called fixed index annuities—track a particular market index, like the S&P 500, and allow investors potentially to enjoy more growth than fixed annuities. They generally implement a cap on how much you can gain or lose.
- Single premium immediate annuities (SPIAs) are purchased with a single lump-sum payment and repayment begins immediately. These are particularly helpful for those who are buying annuities right when they begin retirement.
- Qualified longevity annuity contracts (QLACs) are annuities designed to help investors avoid outliving their funds and defer required minimum distributions (RMDs).
- When deciding whether to buy an annuity, think about these questions:
- How much are my expected living expenses?
2. What is my expected income; include Social Security and any additional pensions?
3. Is there an expected shortfall between my anticipated retirement income and expenses?
4. Do I have the option to annuitize an existing 401(k) or 403(b)?
5. What is the size of my expected nest egg at retirement? Will the income from my portfolio be enough to supplement my income streams?
6. Do I want the security of knowing I have a lump sum or regular income payments in retirement?
- After evaluating your answers to the above questions, you’re better able to decide the answer to “Should I invest in an annuity?”
- In general, if you have a shortfall between projected income and expenses in retirement, you may want to investigate an annuity. Additionally, if you would be happier with an additional income stream and either don’t have enough money in investments to add to your income for your entire expected retirement, then you might answer “yes” to the question, “Should I invest in an annuity?”
- Guaranteed income. Depending on the annuity type and riders you choose, you may be able to lock in payments for life, regardless of how long both [you and your spouse] live and even if the account value falls to zero before your death.
- Research shows that people with a guaranteed lifetime income source tend to be happier and live longer.
- Happiness in retirement is based almost 100% on guaranteed lifetime income, not assets.
- The best advice I always say is to seek out a trusted financial advisor who is proficient with annuities [to] offer a fair and unbiased point of view on retirement income
- Income annuities are less expensive and safer for risk-averse retirees whose primary goal is income security in retirement.
- Enjoy your retirement regardless of interest rates, market conditions or politics.
- Annuities have been around for thousands of years. The Roman Empire issued “annuas” to ensure people wouldn’t run out of money.
- If you observe, people always live forever when there is an annuity to be paid to them. … The annuity is a very serious business; it comes over and over every year, and there is no getting rid of it.
- If you would simply replace the bonds in your portfolio with a lifetime income annuity, the risk of your portfolio will immediately be reduced and your returns will immediately increase.
- Annuities appeal to pre-retirees and retirees by addressing three major retirement income goals: asset accumulation, preservation of principal and predictable retirement income.
- Shelter from creditors – Annuity investments are safe from probate proceedings and cannot be touched by creditors in most situations.
How to Choose the Annuity That Best Meets Your Needs
Now that we’ve laid the foundation for your custom financial home, metaphorically speaking, of course, you should have a more comprehensive understanding of what type of annuity can meet your financial needs and future goals.
Ultimately the choice is yours, and in doing your research and working with an expert insurance advisor, you will be able to invest your capital in the annuity that you can best leverage (financially and in terms of tax-sheltered annuities) for your unique situation.
The combination of expert insurance advice, your knowledge of the annuity market, and awareness of your own financial situation will allow you to make the best decision, based on advice from an annuity expert, when it comes to purchasing your specific guaranteed annuity.
Mintco financial Best Retirement Planning using Annuities in 2021
Remember, bills don’t retire, and your steady source of income doesn’t have to, either. Learn more about how an annuity can provide steady income during retirement. For more information on annuities, or to discuss your specific financial plans in greater detail, contact us today.
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