The Benefits of Annuities in Retirement Planning
Retirement plans are as individual as the people they support. And what worked for previous generations – such as a pension, inheritance or Social Security – may not fully support your financial future. As times change, it’s important to be aware of all the potential ways of securing your retirement.
Fortunately, you have many options for a financial solution, including one that may not be as familiar to you as IRAs and 401(k) plans: annuities. Guaranteed retirement income – these three words are enough to make anyone give annuities strong consideration. So, what is an annuity? It’s a financial product that helps you save for retirement by converting funds into a predictable income stream after you retire, explains David Neishel, a senior national sales representative at Amica Life.
“An annuity is a great product to own, because you basically take all of the risk you would assume in trying to manage those funds or worry about what the markets are doing, and you transfer it right over to the insurance company with the promise of guaranteed retirement income,” Neishel says.
You could think of an annuity as setting up your own private retirement plan. For example, with a tax-deferred annuity, you make either one lump-sum payment or periodic payments, which accumulate tax-deferred earnings until you begin to make withdrawals. When the withdrawals begin, you’ll receive a consistent, stated amount for the rest of your life or a set amount of time, depending on the duration you choose. In either case, you can receive payments monthly, quarterly, semi-annually or annually, Neishel says.
You could think of an annuity as setting up your own private retirement plan.
Another option is an immediate annuity, allowing you to convert a lump sum payment into an income stream right away, which is helpful for those close to or already in retirement.1 Like with tax-deferred annuities, your final income amount depends on how much you initially deposit, as well as the interest rate at the time you annuitize the money, says Todd Oster, assistant vice president of sales at Amica Life.
Advantages of an Annuity
- Guaranteed lifetime income: There are several ways to save for your retirement, but only one can truly guarantee retirement income for the rest of your life. An annuity can help remove worry about outspending your savings in retirement. “As we get older, we become more risk-averse,” notes Oster. “We don’t have the time to make up for a big loss in the stock market. So having that money in a guaranteed payment is really a great way to hedge against those losses.”
- Tax-deferred growth: With a deferred annuity, you’re able to grow your savings over time without paying taxes on the interest until withdrawal. Plus, you could earn more than a taxable account with the same interest rate, Oster adds.
- Fixed interest rates: You can avoid volatile market swings with a competitive, fixed interest rate. “Once you start receiving your annuitized stream of income, the payment is locked in,” says Neishel. And while you’re contributing, your interest rate will never go below a specified minimum. “There’s no cap on how high that can go, but there is a guaranteed minimum stated in each contract,” Neishel says.
- Flexible options: You may not be sure of when, but you know you want to retire comfortably. If you’re already in retirement, you know you don’t want to run out of money. From deferred to immediate, there are different annuity options to suit your needs. “We complete what’s called an ‘annuity suitability,’” says Oster, “which is a series of questions we ask just to make sure that what the customer is trying to do, and what they want to do, is really appropriate for them.”
By purchasing an annuity from Amica Life, you can take a step toward securing a reliable source of retirement income – no matter how far from or close to retirement you may be.
As you compare various retirement products, consider whether a tax-deferred annuity is right for you.
- 15 Things You Need to Know Now About Annuities, U.S. News & World Report, 2019.
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