Annuities

Immediate Annuity Basics

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Immediate Annuity Basics

When it comes to retirement, we spend most of our time thinking about accumulating funds. We spend very little time at all thinking about how we are going to distribute all our retirement funds in a fashion where we won’t outlive our retirement savings. With so many different options for retirement income; one question you may ask yourself is, Should I consider buying an immediate annuity for retirement?

Immediate Annuity Basics

Top 4 Reasons to Buy an Immediate or Income Annuity for Retirement

  1. Guaranteed Paycheck – Get a guaranteed income stream that you cannot outlive. Many people buy an immediate annuity to turn a lump sum of cash into consistent steady paychecks. These guaranteed paychecks can be used to cover some of your fixed retirement expenses. These paychecks will last your entire life no matter how long you live. You can even set it up where the checks continue to go to your spouse when you pass away.
  2. Certainty – Your income is not impacted by market swings. You can be certain that your income will remain stable and that it will be there each and every month. Also, like social security, the longer you wait to start receiving your paycheck the more your paycheck will be.
  3. Protection – Annuities are products sold by insurance companies. Therefore your payments are protected against default form the issuing insurance company. Make sure to check out the financial health of the insurance company you are considering purchasing from.   Also, each state provides a guaranty fund to protect annuity owners in case your insurance company faces financial trouble.
  4. Longevity Insurance – This corresponds with Reason 1. You cannot outlive your guaranteed paycheck. If you live to 120 years old, then you continue to get your paycheck.

Immediate Annuity Basics

Work with a qualified financial advisor to determine if an immediate annuity should be part of your retirement income strategy. Be careful because most insurance salesman sell annuities. They are not right in all situations. Be sure to check the credentials of your financial advisor to make sure they are qualified to give advice on effective retirement income strategies.

Immediate Annuity Basics

Variable Annuity

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Variable Annuity

Variable AnnuityYou may have heard that your friend recently invested in a variable annuity. You may ask yourself, “Should I buy a variable annuity?” I have put together the top 5 reasons for buying a variable annuity and 5 things to consider before purchasing a variable annuity. As always, consult with a qualified financial professional before you do anything. Your situation is unique and you should not do anything because your neighbor or colleague suggests it.

Top 5 Reasons to buy a variable annuity…

  1. Save for retirement – variable annuities can be used to save for retirement. To make it easy, you can set up a systematic savings plan.
  2. Tax deferred growth – unlike a taxable brokerage account, when you invest money in a variable annuity it will grow tax deferred. You will not pay any taxes until you start taking money out of it.
  3. Income stream – When you are done accumulating money for retirement you can turn your variable annuity into an income stream. The paychecks that you will be getting from your variable annuity will have the ability to increase over time, thus keeping up or outpacing inflation.
  4. Multiple investment options – variable annuities have different investment options. You can allocate your money to subaccounts that invest in stocks, bonds, real estate, and commodities, to name just a few.
  5. Riders – There are many different options available for purchase when you buy a variable annuity. Some riders include lifetime withdrawal options that allow you and your spouse to have a predictable income stream that is guaranteed to last for as long as you and your spouse are alive.

*Bonus Reason* Avoid Probate – avoid probate on your variable annuity by setting up a beneficiary.

Variable Annuity

5 things to consider before buying a variable annuity…

  1. Surrender Charges / Penalty – Though not typical for every annuity, some surrender penalties can be as high as 16%.
  2. Surrender Period – some variable annuity surrender periods last as long as 16 years
  3. Mortality & Expense (M & E) Charge – This is the fee the insurance company charges to compensate them for the risk of issuing the annuity. Such an expense may be 1.5% annually of the account balance. This is in addition to the management fee for whatever subaccounts you choose. The management fee could be another 0.75% annually.
  4. Retirement Vehicle – Variable annuities are for retirement. There are adverse tax consequences for taking distributions from a variable annuity before age 59.5 years old.
  5. Taxation – Distributions will be taxed as ordinary income, not as dividends or capital gains.

*Bonus Consideration*

There are many variable annuities to choose from. The complexity of these products can be overwhelming for most people, not excluding the people that sell them. If you don’t understand what you are buying then walk away. If it sounds too good to be true then it probably is. Proper due diligence will allow you to find the right product for you.

Variable Annuity

Annuities

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Annuities