With the future of pensions up in the air, Social Security on thin ice and 401(k) fees causing concern, more and more people are turning to other types of funds to lead them into retirement. One of their attractive options? Annuities. Unlike other investments, annuities are held through the insurance industry and are known for their flexibility which is lacking in many other funds. For some people these annuities are their main investment, others use them simply as a surplus income. Retirement plans are different amongst everyone, but there are a few reasons why you should be giving annuities a second look.
- Flexibility - As mentioned, Annuities offer more flexibility than most other retirement funds. In your career, you went to work every day and earned money. In your retirement, it may seem like you wake up every day and simply spend money. Vacations, family get togethers, shopping trips, etc. It’s important to ensure that you have money coming in that can cover those expenses. One of the most popular annuities is a Single Premium Immediate Annuity (SPIA) in which one lump sum payment guarantees you a monthly paycheck for as long as you wish it to last. It simply acts as a pension plan organized and determined by your wishes.
- Lifetime Payments – With the life expectancy rates seeming to climb every day, one of the biggest risks of retirement planning is longevity. Many types of funds can leave holders worried whether the income will last them for their entire lives. Of course pensions and Social Security are a lifetime option, but the future of both of those funds is beginning to be questioned by many. The SPIA is one of the only options that ensures lifetime payments. The payouts of a SPIA are determined by your age, interest rates, and time of purchase amongst other factors. Additionally, holders can determine whether they want the payments to cover a single life of married couple. They offer the longevity needed paired with the flexibility preferred.
- Avoiding Risk – Everyone saw the devastating effect a market turn can have on the investment portfolios of recent and soon-to-be retirees. It can be a scary thought for anyone approaching that age. Annuities, with all their options and flexibility, offer a security from these market effects without enduring the poor interest rates in options such as money markets. Certain annuities protect your principle while investing in stock mutual funds, while others put your money in the market but guarantee your investment won’t dip below your original input. It’s quality peace of mind with the opportunity for growth.
With all the advantages of annuities, some people might run out the door and get themselves one ASAP, but there are certainly other things to consider before making any moves. Because of the options and flexibilities involved with annuities, they can be confusing and technical in terms of their contracts. Before you put your name on the dotted line, make sure A) you have an advisor you can trust and B) you get all of your questions answered. Ask about commission fees, fees for early withdrawal and surrender charges.
Another danger lies in interest rates, which can often have a great effect on the size of the payments you receive each month. The current interest rate is one of three factors determining the payment size, but it does have a significant effect on monthly changes. Try to find annuity options with a guaranteed interest rate that you know you can count on.
With all the changes shifting through the retirement funds and what seems to be the beginning of the end of pensions, annuities are becoming an attractive and viable option for most retirees. Even if people aren’t ready to abandon the more traditional offers, annuities can provide a comforting supplemental income. Take the time to look at the options of annuities and see if they could benefit you. It could pay off later.