You can pay for an annuity in a couple ways. Flexible premiums are the easiest, as they allow you to pay a little bit each month, year, or any other period of your choice. Or, if it better suits you, you can buy an annuity with a single premium. There is usually no upward limit here, so if you inherit money or even win the lottery, you can invest it as a single lump sum to fund your annuity. These different methods make funding an annuity much simpler than loading a different type of investment, such as an IRA where there are yearly contribution limits. There are no funding limits on annuities, making them a great investment if you have already maxed out your company’s retirement plan and your IRA contributions for the year.
An annuity helps to ensure that you don’t outlive your money. When it comes to realizing your retirement goals, your number one priority should be your continued financial safety. After you have set aside money, you need to consider how you want to receive it. You do not want to outlive your money, nor do you want to be forced to change your standard of living. Social Security can be a help here, but this tends to only be a fraction of what you were making each month before retirement. You have worked hard to finally get to the point of retirement and you have saved your entire life to protect yourself. The truth is that a couple poor investments can change your retirement dreams for the worse. Simple bad luck can affect you in serious ways. This is where annuities step in.
An annuity provides a guaranteed income for the rest of your life. If you are married, then you can even select a feature on most annuities so that your spouse can also receive a guaranteed cash payment each month for the rest of their life. There are many ways to customize your investments and how you receive them to fit your lifestyle and your individual needs. Depending on what you are looking for, some companies and some products will be better than others. If you do have questions about how you can maximize your investments to have a better retirement, get in touch with a financial advisor that you trust to provide you with this guidance. Not all annuities are the same, and some will help you far more than others, so it’s important to be aware of what your needs are and how you can best achieve them.
The purpose of an annuity is to reduce the element that luck might have on your retirement. Annuities come with many built in safety measures that can allow you to live out the dream that you have made for yourself. Besides the standard safety measures provided for by the insurance company, you can use your annuity to fulfill many needs. If you are worried about outliving your cash supply, you can opt to get a straight life policy. This is the most basic form of annuity distribution and will provide you with a steady stream of income—even if you live longer than your initial deposit plus interest will carry on for. Other types of distribution options can be structured to pay a spouse or beneficiaries after you pass away. In other words, regardless of your purpose for buying an annuity, you can find a type of distribution that will most benefit you and your loved ones.
Additionally, an annuity is credited tax-deferred interest, making it a superior investment to mutual funds where you are required to pay taxes on what you earn on a yearly basis. In this light, you can see annuities gaining interest in a three-pronged manner: the original amount that you put in plus any subsequent deposits, the interest that you have already compounded, and the amount of your earnings that would otherwise go toward taxes. This allows annuities to grow at a faster rate than a mutual fund with the same stipulations would. You will need to pay taxes on this money eventually, but because that money is not withdrawn until you are in your retirement years and your income is likely to be lower at this point in life, the tax rate that you pay is likely to be a lot lower.
Unlike stock or bonds, annuities are not taxed until you begin taking withdrawals from it. While Uncle Same can tax income that you make off of some investments immediately, annuities are deferred for your benefit. Depending on your age and your financial goals, this can be a superior investment to stocks much of the time.
Annuities, despite being an insurance product, are a surprisingly easy way to diversify your portfolio. You can use a variable annuity to give you higher risk/higher reward assets that grow at approximately the same rate as the rest of the market, an equity indexed annuity to give you protection against inflation and mirror a major index like the S&P 500 or Dow Jones, and a fixed annuity to make sure you will have at least some growth of your funds month after month. Having multiple annuities within your portfolio can be a great benefit, as you can see. Again, depending on how old you are, what your retirement goals are, or a variety of other factors, some or all of these things might help you to achieve your goals. For more information, please get in touch with a financial professional today to help you get a better understanding of how to make the most out of these things.
For Your Beneficiaries
To get the most out of your investing, annuities should at least comprise a portion of your overall investment portfolio. They might not be used until later in your life, but they should always be on the table as a consideration. At different points in life and in different financial circumstances, different types of annuities can provide unique benefits that you won’t find anywhere else. They are a unique way to preserve cash and fund retirement. And because they are technically an insurance product, you can even use them to pass on cash to a beneficiary in a way that you cannot with other investments. IRAs and 401(k) investments all are taxable under the capital gains tax law. Even though they can provide tax benefits now when used in a manner that is in compliance with tax shelter laws, those benefits do not extend to beneficiaries after you pass away. With an annuity, only the accredited interest is taxable when a beneficiary begins receiving the deceased’s annuity funds.
Finally, annuity benefits avoid probate. When an annuity owner passes away, their estate will be locked in probate until all of the issues are accounted for. Annuities are an insurance product, and therefore will go to the beneficiary once the insurance company receives and processes the death certificate. Like other life insurance products, annuities that are passed down avoid this lengthy process. In this case, if you are the process of planning for your legacy, then an annuity can help protect your money as you hand it off to your heirs.
Annuities have benefits that other investments cannot provide you with. However, that doesn’t mean that they are the absolute best choice for you. You need to carefully consider your options before moving forward. Consult with a financial professional if you have questions.