3 Times When Buying an Annuity Might be the Answer
Annuities are a financial option that pay out a fixed amount of income over time based on the amount of the annuity. Opinions on the usefulness of annuities often vary. Like anything, they have strengths and weaknesses so you have to decide for yourself if it makes sense for you.
Annuities can provide steady income and help protect your funds from changes in the market, but they also don’t have as much upside as other types of investments and can be inflexible. Because of the positives and negatives, considering your unique circumstances before purchasing an annuity is important.
When the answer to “Should I Buy an Annuity” is Yes
If you are afraid you will outlive your retirement savings, an annuity can help guarantee income for your future.
- How it works: You purchase an annuity to pay out a fixed rate for the rest of your life. Be sure to choose a highly rated insurance company when you purchase an annuity. Your payments are dependent on the insurer’s ability to pay.
If you are considering retiring early, an annuity can help supplement your lost income before you are able to draw from your retirement funds or social security.
- How it works: Purchasing an annuity that is guaranteed for a certain number of years would allow you to retire early without worrying about income for those years. Let’s say you want to retire at 55 instead of 65. You could purchase a 10-year annuity to pay you a monthly income during that period of time. The benefit of this strategy is that it’s a set amount decided ahead of time so you don’t have to worry about running out of savings before you can make withdrawals from your retirement accounts.
If you are comfortable with the amount in your 401k or IRA and want to invest more than the IRS allows.
- How it works: The IRS has limits on how much you can invest into a 401k or IRA, but there is no limit to how much you can contribute to an annuity. If you are comfortable with the amount you have saved in your IRA or 401k account, you could save larger amounts by shifting your focus to an annuity. The annuity payments could be deferred until your retirement date and could be used in addition to the funds you get from your other accounts. Unfortunately, the money you contribute to an annuity can’t be deducted from your income like it can when you invest in a retirement amount.
While annuities can make sense in many scenarios, they aren’t a solution for everyone.
- If you don’t feel comfortable locking up a portion of your retirement funds, an annuity is probably not for you. To purchase an annuity, you need either a lump sum of liquid assets or the resources to fund it over a period of years. Once your money is in the annuity, it is tied up and will cost you a fee to withdraw some or all of it.
- If you already have enough funds through a pension or social security, an annuity could be more work than it’s worth.
There may be other scenarios in which an annuity is or isn’t the right solution for you. If you think an annuity is a good option, talk to an agent/producer to find the structure that best suits you.
Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc. Member FINRA/SIPC. Investment advisor representatives offer advisory services through Mutual of Omaha Investor Services, Inc.
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