For most retirees, their primary concern is income. You need to know that you can depend on a stream of income for the rest of your life, and you hope that it’s enough to cover your living expenses.
Annuities are one way to accomplish this goal, but because they can be somewhat complicated insurance products, you should learn the basics before you begin to sort through your options.
If you opt for an immediate annuity, you will pay a lump sum to an insurance company. In return, the company will pay you an annual sum of money for the rest of your life. As the name suggests, these payments begin immediately.
A deferred annuity works in the same manner, with one primary difference: The payments don’t begin until some point in the future. Why would anyone make that exchange? A deferred annuity can offer larger payments in exchange for waiting. People who choose deferred annuities usually don’t need the income to begin right away, but they do anticipate the need for larger payments in the future.
There are also other types of annuities that offer the potential for growth, while guaranteeing you that you can withdraw a certain amount of money annually. However, you’ll want to make sure you keep an eye on the fees and rules. Some annuity products do carry higher fees than others and the rules can vary as well. The main thing to remember is that fee structures and guarantees can vary widely, so you shouldn’t choose any annuity without careful consultation with a professional.
The important thing to know about annuities is that you’re essentially exchanging your principal for income that lasts the rest of your life. If your life expectancy is shorter than average, or if you end up not reaching your full life expectancy for some reason, an annuity might not be a good deal for you. And of course, if you’re married you have to consider both yourself and your spouse.
For those of you who desire guaranteed income for the rest of your life, and don’t mind giving up access to a principal amount of money, an annuity can be a good fit for your portfolio. Give us a call to learn more, and we can help you decide if this trade-off matches your retirement income needs.