Annuities Don’t Have to be Confusing

With people living longer and market uncertainty on the rise, annuities are being revisited as a potentially powerful tool to help provide guaranteed income for life.

With retirement lasting longer and retirees concerned about economic volatility and rising living costs, now may be a good time to learn more about annuities and the role they can play in your retirement strategy.

To start, whether you’re planning for retirement, getting close, or already in it, it’s important to have a retirement plan in place, and review it regularly. Having an account like a 401(k) doesn’t mean you have a retirement plan. Too often, people put away money in a tax-deferred 401(k) or similar plan and don’t think about how they will create a stream of income from it once they are no longer getting a paycheck.

As you get closer to retirement, it’s important to reconsider how much of your savings are exposed to the ups and downs of a volatile stock market. This is especially true because of “sequence of returns risk.” Breaking this risk down, if you retire during a stock market downturn and begin withdrawing money from your 401(k) for income, your savings can shrink much faster over time compared to someone who retires and withdraws income when the market is doing well. And since no one can actually predict the future, it’s best to leverage several strategies in your retirement plan.

An annuity is a contract between an individual and an insurance company designed to provide a monthly stipend or income during retirement. There are many different types of annuities, and some have different fee structures and contract terms which may, or may not, be better in your case. That’s why it is best to work with an independent financial advisor who has access to many different types of annuities from multiple highly-rated insurance companies to compare between.

Some annuities, like lifetime fixed indexed annuities, even provide retirement income that won’t run out no matter how long you live, guaranteed by the financial strength and claims-paying ability of your insurance company providing the annuity policy. And some even have contract provisions to address inflation.

Annuities can be appealing because they allow you to take part of your retirement nest egg and purchase monthly retirement income in the form of an annuity, so you don’t have to worry about managing withdrawals aside from required minimum distributions (RMDs).

With your income accounted for, the rest of your portfolio can be accessed or left in the market, depending on future need and economic conditions.

Many retirees find that they prefer the predictability of guaranteed lifetime income rather than regularly withdrawing from their savings or retirement accounts, even when they have accumulated sufficient assets. It can be hard to think of your savings as a source of retirement income, which is why working with a retirement advisor to create a real retirement plan can help give you confidence in your financial future.

As more individuals approach retirement age, annuities are increasingly being considered as part of the fixed-income portion of retirement portfolios. Retirement strategies today often go beyond the traditional mix of stocks and bonds. Research in the field of retirement planning suggests that fixed indexed annuities, when used appropriately, may help address specific risks such as longevity and market volatility.

Depending on the product, certain fixed indexed annuities may include features such as income bonuses, long-term care or terminal illness provisions, or spousal income benefits. These options can provide flexibility when aligning annuity products with individual retirement needs and goals.

With so many choices, it’s important to remember that every person’s situation is unique, meaning annuities may or may not be indicated depending on your specific needs and goals. That’s why we’re here to help you explore your options, explain how different annuities work, and create a long-term retirement plan.