What Are Annuities? Your Guide to Guaranteed Income for Life
When planning for retirement, creating a reliable stream of income is crucial. Annuities offer a unique solution, converting your savings or inheritance into guaranteed income for life. This guide will explore how annuities work, their advantages, and why they might be a valuable addition to your retirement strategy.
How Do Annuities Work?
Annuities are financial products offered by reputable insurance companies. They are designed to pay you a steady income stream throughout your retirement. Here’s a key benefit of annuities:
- Protection from Market Downturns: Unlike traditional investments, indexed annuities offer protection against market losses. Your principal grows with the market but remains secure if the market declines. As the saying goes, “zero is your hero” with annuities.
How Does Annuitization Work?
Annuitization refers to the process of converting your annuity into a stream of income payments. You can choose when to begin receiving payments, typically at retirement. Once you start receiving payments, they are guaranteed for your lifetime.
Why Are Annuities Often Overlooked?
You might be surprised to learn that annuities are more common than you think:
- State Employee and Government Worker Retirement: Many public pensions function similarly to annuities. Upon retirement, employee contributions are converted into annuities to ensure a steady income stream.
- A Modern Take on an Ancient Tradition: The concept of annuities can be traced back to the Roman Empire, where a similar system was used to compensate soldiers after their service. Annuities have a long history of providing financial security.
Why Some Financial Advisors Don’t Recommend Annuities
There are a few reasons why you might not hear about annuities as frequently from financial advisors:
- Financial Advisor Compensation: Financial advisors typically earn fees based on the assets they manage under your account. Even if your investments lose value, they still receive compensation. Annuities, on the other hand, transfer your money to insurance companies, potentially reducing the fees advisors can earn.
- Focus on Market Returns: Some financial advisors prioritize market-based investments that offer the potential for higher returns, even if they come with greater risk. Annuities, in contrast, prioritize safety and stability over high-risk, high-reward investment strategies.
The Benefits of Annuities
As you approach retirement, annuities offer several compelling advantages:
- Guaranteed Income for Life: No matter how long you live, you’ll never outlive your income stream.
- Market Protection: Your principal investment is protected from market downturns.
- Tax Advantages:
- For annuities purchased with after-tax dollars, only the interest earned is taxed.
- While 401(k) rollovers are taxed as usual, annuities can provide guaranteed income stability.
- Flexibility: You can choose how much income you receive and when payments begin.
- Beneficiary Protection: If you pass away before receiving all your funds, your beneficiaries inherit the remaining amount.
How to Use Annuities
There are a few ways to integrate annuities into your retirement plan:
- 401(k) Rollovers: Nearing retirement? Consider rolling over your 401(k) into an annuity before you retire. For example, you could move your funds into an annuity at age 59, allowing it to grow until you’re ready to begin receiving monthly payments at age 65.
- Converting Savings or Inheritance: If you receive a lump sum inheritance, you can convert those funds into an annuity for guaranteed income. Alternatively, you could consider using the money to purchase an insurance policy that allows you to borrow against it tax-free.
Why Annuities Are a Smart Retirement Choice
Reliance on a 4% annual withdrawal rate from market-based accounts can leave you vulnerable to running out of money in your later years. Annuities offer several advantages:
- Guaranteed Income Security: You’re guaranteed to never exhaust your income stream.
- Potential for Increased Income: You may even be able to withdraw more than you initially invested.
- Beneficiary Protection: Your loved ones are protected through beneficiary payouts.
Take Action Today
Ready to secure guaranteed income for life? Don’t delay! Here’s how to get started:
- Visit EstateChecklist.com and complete a contact form.
- Send an email to estatechecklist@gmail.com or text us at 8608841370
- Request my phone number to text or chat directly.
I’m a nationally licensed professional and can help you find the perfect annuity to meet your needs, whether you prefer to connect via text, phone, or email.