Annuities are becoming a more popular retirement investment choice, and the products offered are more diverse than ever. They aren’t for everyone, but annuities have a lot to offer in terms of both flexibility and security.
Learn more about thirteen considerations that make annuities good investment choices, and see how a financial professional can help you pick the best one!
1. Flexibility
Annuities offer a tremendous amount of customization in the form of riders. Riders are additional policies within the contract that allow you to have a guaranteed lifetime income, a cost of living adjustment that protects your benefits from inflation, and more.
Other forms of retirement savings typically don’t offer the range of options that annuities do. If you have other forms of retirement income, you can target your annuity to focus on a specific thing like long-term care.
While riders allow you to create an annuity that fits your specific needs, the fees associated with riders can eat into your benefits. That’s why it helps to shop in the annuity market with a qualified professional. They’ll help you make sure you get everything you need and nothing you don’t.
2. Guaranteed Retirement Income
If you’re nearing retirement, an annuity can be a good option to give you income throughout your whole retirement, no matter how long you live. Some annuities can even be purchased with other money that you’ve set aside for retirement.
This guaranteed retirement income makes annuities good investment options for those worried about outliving their savings.
3. Deferred (Often Lower) Taxes
Some annuities are purchased with pre-tax dollars, which allows you to defer taxes until you receive the money back in the form of income. That makes annuities good investment choices and a great place to store any sudden windfalls or bonuses.
Of course, you will have to pay tax on the income you get from the annuity. But in retirement, with fewer sources of income, the rate will often be less than you would have paid upfront.
4. No Taxes in Retirement on Roth Annuities
On the other hand, there are sometimes good reasons to pay taxes on your retirement funds upfront. A Roth IRA annuity collects already taxed money, so most account withdrawals are tax-free.
A Roth annuity also allows you to rollover your IRA funds. This makes sense if you want to keep working past the minimum distribution age or if you want to keep your annuity funds for later in your retirement.
No matter your tax strategy, the number of options makes annuities good investment choices.
5. Protect Your Inheritors from Probate
Annuities allow you to pass on your money without it going through the often lengthy and tedious probate process. If your loved one is named as a beneficiary, they can quickly access the annuity death benefit and use it for whatever they need.
Probate can take a year or more before your money and assets are freed up for use. In the meantime, anyone depending on you for income may struggle. But with an annuity, you can protect them.
6. Protect Your Estate from Taxes
Even if nobody depends on you for income, your inheritors may be confronted with a hefty tax bill for your estate. Even just inheriting the family home can come with serious financial consequences.
Because an annuity allows you to get cash to your named beneficiary quickly, your inheritors can pay any tax bills or remaining expenses without digging deep into their own funds.
Making sure your inheritors have access to the money they need is part of what makes annuities good investment choices.
7. Better Return Than a CD or Savings Account
Even gradual inflation over a few decades can eat into your retirement savings. With higher inflation than we’ve seen in some time, that’s even more of a concern for today’s retirees.
Savings accounts and CDs simply can’t measure up to the rate of return most annuities can offer you.
Of course, CDs and savings accounts have FDIC protection, and annuities do not. However, annuities are backed up by the issuing insurance company and the State Guaranty Association.
This makes annuities a great option to safely save for retirement and get a solid return.
8. Skip the Stock Market…
If you’re gun-shy about investing your retirement funds in the stock market, you’re not alone. But with a fixed annuity, the market never even enters the equation; you simply get the agreed-upon rate of return.
But you don’t have to be completely risk-averse. Many people who have retirement savings in the stock market or other investments also have an annuity as a backstop to protect their retirement income.
9. …Or Harness the Upside of Stocks
On the other hand, fixed indexed annuities can help you to access the stock market while still getting a guaranteed return. These funds invest some of your money in a stock fund that’s generally linked to an exchange index like the S&P 500.
Fixed indexed annuities have a guaranteed minimum return rate that you’ll get even if the market tanks. But, if the market is doing well, the annuity will pay up to a set maximum rate. You won’t be able to get the full upside of a bull market, but you’ll be protected from loss.
Setting your own level of exposure to the market is what makes annuities good investment ideas.
10. Never Run Out of Money
Don’t start out your retirement by worrying about how long you’ll live. Annuities allow you to have a guaranteed income for the rest of your life, no matter how long that is.
The money you have in your 401(K) or mutual fund will eventually run out. Social security benefits are too low to live off of. But an annuity can help you build a retirement income stream literally for life.
This security is part of what makes annuities good investment options for so many people.
11. Pay for Long-Term Care
Paying for long-term care is a serious concern for many seniors, especially as Medicare doesn’t cover it. But, many annuities offer a long-term care rider that can help defray the costs.
Most riders will set up a separate long-term care fund apart from the main income stream. If you can show that you need support with daily living tasks like eating, getting dressed, or moving around your home, you’ll be granted access to that fund. The condition can be temporary or permanent.
The monthly payout will typically be a multiple of your normal benefit. For instance, you may get double your income payments for up to five years. These policies can help protect you and your family while allowing you to access the care you need.
12. Have Protection in Case of Terminal Illness
If you’re worried about a terminal illness, you can purchase a rider that allows you to access your annuity’s death benefit while you’re still alive. You can use that money to set your affairs in order or to enjoy your final years.
Annuities will have different requirements for accessing this benefit, so be sure you understand the rules. But if you worry about a terminal illness causing financial stress for your family, this rider can offer great peace of mind.
13. Protect Your Spouse
If you’re worried about your spouse outliving you and needing financial support, annuities can help you there, too. If your spouse is named as a beneficiary, they have a lot of options when it comes to continuing your annuity.
If your annuity is still in the accumulation period, your spouse can inherit it and receive any tax-deferred benefits the contract provides. If you’re already in the annuitization phase, your spouse can elect to continue receiving income payments for the length of their life.
A Few Caveats
An annuity perfect for one family’s situation may not meet someone else’s needs. Because annuities are so customizable through riders, it can be hard to wade through the different options and feel like you’re getting the best deal.
Annuities also make accessing your money difficult and often costly if you need it in an emergency. This is why they’re not always the best retirement savings choice for younger folks.
Any annuity is a huge purchase with significant financial implications both now and often decades in the future. That’s why it’s worth it to look for some professional help.
Contact Annuity Associates Today
Our trained financial representatives can help you sort through the annuity jungle and find a plan that provides you and your family with peace of mind. See what makes annuities good investment choices for so many people.
Contact us today!