Increase Your Financial Security With Annuities
You may have thought saving for your retirement was the hard part. Have you thought about how you're going to manage your savings so you don't outlive your income once you're ready to retire?
An annuity may be just what you need.
With an annuity, not only do your earnings grow tax-deferred until you start receiving payments, but annuities can also help you manage your retirement resources by paying you an income that is guaranteed for life.
Two basic types of annuities that can provide these benefits are fixed or variable.
Money invested in a fixed annuity earns a fixed rate of return and is tax-deferred. That means taxes on earnings are deferred until you begin taking money out. This potentially allows you to accumulate a greater amount of money before you pay taxes. If and when you decide to receive an income, you may choose from several options including receiving a fixed payout for life.
A variable annuity allows you to diversify your investments among different bond and stock subaccounts that you select. The value of the annuity and how much your money grows depends on how well the subaccounts you selected perform. Fund selections should be based on your risk tolerance, as there is a risk of possible loss of principal. However, like a fixed annuity, variable annuities offer the benefit of tax-deferral and an income if you chose to annuitize.
The ability to annuitize is one of the best ways to deal with one of the most difficult problems in retirement – outliving your income. No other financial tool allows you to receive a lifetime benefit, with a guarantee that the money will never run out.
Some annuities feature an optional death benefit. If you die before you begin taking an income, annuities can provide a benefit that guarantees your heirs will receive the return of the principal investment amount – PLUS either the earnings for the fixed interest rate or the earnings from the performance of the subaccounts, depending on which type of annuity you've chosen.
Tips on Buying Annuities
- Be sure to talk to your financial professional about what type of annuity may be right for your retirement portfolio.
- Participate in any employer sponsored retirement savings plan.
- Make sure you fully understand the annuity contract you are considering. In addition:
- If you are purchasing a fixed annuity, find out the current interest rate being credited to the annuity.
- If you are purchasing a variable annuity, find out what types of investment options are offered and the contract expenses.
- Be sure to review the prospectus carefully.
- Learn about the variety of payout options. If you and your spouse need to supplement your Social Security and pension benefits with a steady stream of income, annuities can provide a variety of options to consider.
- Look for a company that is reputable, consumer-oriented and financially strong. Insurance rating agencies such as A.M. Best, Standard & Poor's, and Moody's rate the financial strength of companies. You can get these ratings from your agent or public libraries.