What is a Life Annuity? Find out HERE!

A life annuity does pretty much the same thing as pensions in providing income for life and helping people plan their spending. And yet, only a small number of people without a pension choose annuities to help generate retirement income. Illogically, the annuity’s promise of income for life just doesn’t resonate.

What a retiree needs?

What retirees need is income. What they get is a bunch of money that must be intelligently invested to produce that income.An annuity is the only product available today that can hedge against your personal longevity.

Money put into an annuity is set apart from volatile stock markets and therefore immune to emotion-driven mistakes such as selling after a pullback. Inflation is a significant risk with an annuity, but you can cover that off by investing in stocks with some of your other retirement savings, or by purchasing an indexed annuity with cost of living increases.

People also worry about buying income for life through an annuity and then dying in a few years. You can offset this risk with a guaranteed annuity, where income will be paid to you or your beneficiary for a set period of time, say 10 or 20 years. There are also joint survivor annuities that continue payments for life to your spouse if you die.

Another common objection to annuities is a loss of control over your money. Basically, you’ve traded a lump sum of money that you could do almost anything with for a guaranteed monthly income. For this reason, annuities are best used as a part of your retirement investing strategy and not the whole thing.

You should ask yourself: If I don’t have a pension but wish I did, why would I not consider an annuity for some of my retirement savings?

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