What Advantages Does an Annuity Offer For Retirement Planning?

For anyone who’s considering retirement in the near future, an annuity product offers a stable increase to your existing savings and ensures you’ll have enough money for several upcoming years. However, the high quantity of investment options and providers makes finding the right annuities a challenge for many individuals. If you’re looking for the best guaranteed annuity rates, you’ll need to carefully consider the type of product you’re looking for, the variability of the payout, and the company you’re working with. First, let’s go over some of the key differentiating factors you’ll need to understand when selecting an annuity product.

Understanding Annuity Products

If you’re searching for annuity products that support you moving forward into retirement, you’ll need to carefully consider the type of product you’re getting, the frequency and variability of the payouts it offers, and the quality and transparency of your annuities provider. Let’s go over some of the terms you’ll need to know when shopping for annuity products.

Variable vs. Fixed Annuity

Fixed annuities are one of the safest investments you can make as you continue to age. In this agreement, the rate of returns is set to a rate that does not change throughout the duration of the annuity. Variable annuities, by comparison, payout in fluctuating sums, so the amount you receive per period may change based on the success of the investment product. However, if the insurance company’s investments with your annuity funds are successful, you’ll likely end up with more money than you might with a fixed annuity. In this instance, it’s a case of more risk, more potential rewards. And while there is some risk to variable annuities, they are still one of the safer tools for retirement planning.

Immediate vs. Deferred Annuity

In an immediate annuity agreement, you’ll begin receiving payments as soon as you begin the investment process. Often, the rate of return for an immediate annuity is lower than other standard annuity offerings. Deferred annuities, for comparison, begin payments after a set time period, usually somewhere in the range of five to ten years. As the individual investing in the deferred annuity, you’ll have control over the length of deferral. The right deferral period balances your current life expectancy, to ensure that you won’t run out of payments, with your expected date of retirement.

Finding the Right Annuity Company

When it comes to selecting an annuity, the company you’re working with matters. You’ll need to find a provider that can help educate you on the value of your various annuity options and support you through this process. Transparency is essential, as is integrity in the advice that you’re receiving. Make sure the annuities company you’re working with keeps your best interests in mind while assisting you with choosing the right investment products.

Benefits of Annuities

Once you’ve selected the right type of annuity for your situation and savings plans, you’ll need to review the quality of the product, which is usually marked with something called the “AM Best rating.” Annuity grades range in the As and Bs. Usually, they come alongside a minimum investment and a max issuing age, the last of which denotes when the last possible payment will occur. Here are a few of the advantages an annuity can offer you, no matter which product you’re planning to select.

Safe Investment

The primary benefit of the annuity is that it’s one of the safest investments you can make for retirement and the years beyond. For a fixed annuity, there’s no risk, provided you don’t need to withdraw the funds during the payout period. The rate of return is fixed around 2 or 3 percent and is guaranteed throughout the lifespan of the annuity. If your provider company enters bankruptcy, you won’t need to worry because your money is FDIC insured. Even if you’re choosing to work with a variable annuity, you’re still playing it safe with your money, as other investment options like stocks and property have significantly higher variability and crash potential.

Stable Income

The payout from an annuity occurs regularly and helps ensure you won’t run out of money before you die. In most cases, you’ll need to fund the annuity upfront to set up a more straightforward payout. This process ensures that you’ll have plenty of financial stability and support for you and your family in the upcoming five to ten years.

Flexible Product Offerings

As mentioned above, there are plenty of options when it comes to selecting an annuity product. You’ll need to choose between a variable and fixed annuity, pick the time period that matches your life expectancy and retirement plans, decide if you want to set up payment deferral.

Combat Inflation

Keeping all of your money in the bank before retirement is ironically a dangerous tactic for ensuring a comfortable retirement. Annuities help you combat inflation safely, without having to choose stocks or other more volatile investment strategies.

Downsides to Annuity Investments

Annuities are generally safe but come with a few key drawbacks you’ll want to be aware of before selecting a product. The first drawback to annuities is their lack of liquidity. It can be challenging to pull your money from the annuity in advance of its expiration, even in an emergency. If you do manage to cash out the annuity, you’ll likely be doing so at the expense of any potential profit. The second major drawback is the complexity of your options. You may want to speak with a financial planner before purchasing an annuity and should research more of the specific questions you have about finding the right annuity for you.

Conclusion- What Advantages Does an Annuity Offer for Retirement Planning?

Annuities are a safe and reliable way to invest in your future after retirement. These products help ensure you’ll have enough money for the medical care, housing, and everyday expenses of the upcoming years while stabilizing your finances and combating inflation. Speak with an accredited annuities provider today to learn more.

Tony Bennett

Tony Bennett

Tony Benett makes his living in the insurance industry by teaching and consulting. He is also recognized by the legal profession as an expert on insurance coverages. His insurance experience includes having worked at the company level, owned an independent general agency and having worked for an insurance association. He has received various certificates over the past few years and helps his clients and readers by giving them a realistic outlook on what they can expect to achieve within their set targets. At Insurance Noon, he is known for his in-depth analysis and attention to details with accuracy. He has been published as one of the most referred agents by his peers in the insurance community. Tony loves the outdoors and most sport events. His passion other than providing excellent advice is playing golf.

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