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Are Annuities A Good Retirement Strategy For Me?

Annuities

Annuities make good sense as a Retirement Investment choice. They’re a viable option, especially if you:

  • Are keen on having steady income when you retire
  • Belong to a high-income tax bracket
  • Want an investment that grows tax-free
  • Have extra money to save

Understanding annuities can seem a little complex, considering the various tax implications and expenses involved along with the advantages and drawbacks.

Let’s first look at how they work.

How annuitie's work

In its simplest form, you invest in the annuity and receive income on a specific date in the future. This income can be monthly, quarterly or annually or you can choose to receive a single lump sum payment. You could even choose to keep receiving payments for as long as you live or for a specific number of years. There are basically two types of annuitie's:

  • Deferred
  • Immediate

In a deferred annuitie's, you invest your money for a specific time and decide to withdraw after that. This could be when you retire. In immediate annuitie's, you can start receiving payments just after you make your initial investment. For example, if you’re close to retirement age, then you might decide to buy an immediate annuitie's. You can convert a deferred annuitie's into an immediate annuity if you decide you want to start receiving payments.

How much you receive depends on whether your annuitie's are fixed, where your payout is a fixed amount; or variable, where your payout depends on the performance of your investments. You can also calculate the present value of it to figure out how much your payments are worth by taking the annual payment, number of payment periods and interest rate of it.

Talking about investments and returns, can taxes be far away?

Annuitie's do carry tax benefits, so whatever you invest in annuitie's grows tax-free. When the time comes to withdraw your returns, the amount you invested is tax-free, but the money you earn is taxable at the prevailing income tax rate. This brings us to the advantages of Annuitie's:

  • You can put away a large amount of cash tax-deferred
  • Your investment compounds every year, tax-free
  • There are no contribution limits unlike a 401K plan or an IRA
  • When the time comes for cashing out on your annuitie's, you can opt for a lump sum or periodical payments for a steady income
  • Annuitie's are a great add-on to your retirement planning

So if you’re close to retiring, you can ‘catch up’ with your savings by buying retirement annuitie's. You get to keep every dollar you invested in annuitie's, which is quite exciting.

On the flip side, the expenses related to setting up your retirement annuitie's can make a dent in your profits. As a rule, insurance brokers sell annuitie's and expect commissions of up to 10%. If you withdraw money from your annuity in the first few years, you end up paying surrender charges ranging up to 20%, depending on when you pull the money out. Variable annuitie's can carry high annual fees.

The good news is, not all annuitie's carry these high fees. You can choose an investment company that sell annuitie's without the hassle of commissions and surrender charges.

Annuitie's carry a variety of investment and payout options; you can choose the ones that will give you the best returns.

If you prefer a fixed annuity, you get a fixed return and the investment company takes care of the investment.

In variable annuitie's, you choose how to invest your money and the returns you get depends on your investments’ performance.

While retirement annuitie's make a great investment choice, understanding them is definitely necessary before deciding whether or not they will fit into your retirement plan.

 

Learn More About...


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Retirement annuities - Can they be wrong for me?
Retirement annuities are considered an excellent investment if you are looking for long-term steady income. For this reason, many people assume that they can benefit from them. However, there are certain situations where you have to think twice about whether annuities fit your retirement plan.

Understanding Annuities And Choosing The Right One For You
Understanding annuities in all their forms and then buying the right one for you can be quite complicated. Knowing as much as you can will make the choice that much easier.

What Are Annuities | Are All Annuities Created Equal
What are annuities? If you are planning for retirement, you need to know the answer to this question. Annuities are known for the benefits they offer, particularly if you do not want to risk losing your savings. However, you still have to look at the pros and cons of buying annuities.

 

 



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