Annuity For Retirement

Annuity For Retirement

Some investor or Some senior retirement people who are fearful about outliving their savings may have another investment option to consider in their workplace retirement plans. The Treasury Department has issued new guidelines designed to expand the use of annuities inside 401(k) plans. Annuities are attractive to some investors because they offer the ability to build tax-deferred savings, can help to protect the money that you’ve already saved, and generate a steady stream of income in retirement.
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“Life expectancies are getting longer. With that comes an increased risk of outliving one’s retirement savings,” “Annuities can help to prevent that from happening by providing lifetime income for retirees.”
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An annuity is basically an insurance contract in which you pay a financial institution a specific amount of money—either in a lump sum or a series of payments—and the company then invests your money and promises to pay you a regular income right away or in the future.

With an “immediate” annuity, you can generally start receiving payments in about 30 days. A “deferred” annuity enables you to receive payments at some point down the road. You put in a lump sum or build up funds over time (by contributing a monthly amount) then you convert that amount, or “annuitize” it, into a income stream.

Pro and Con of Annuity

Despite the benefits, investors need to weigh the pros and cons to make sure annuities are the right option for their retirement portfolio. “If they want more in guaranteed income then an annuity may make sense,” adding that investors should also evaluate how much they want coming in monthly in guaranteed income versus what they want to keep invested.
 
It’s also important to keep in mind that annuities can have varying degrees of risk.
 
With a “variable” annuity, the money that you put in is invested and your principal could fluctuate depending on the rise and fall of the underlying investments. That’s why some investors purchase variable annuities along with a “living benefit income rider” that will guarantee a certain amount of income. “If you have that income guarantee then your lifetime income would be unaffected even if the account runs out of money,”
 
A “fixed” annuity offers a fixed, guaranteed rate of return for a certain number of years.
 
An “indexed” annuity is designed to give an upside from investment returns tied to an index, like the S&P 500. But the indexed annuity also offers protection on the downside since it guarantees a minimum return—though in this low-interest rate environment the return is usually capped at about one to three percent.
 
While many financial advisors and retirement experts say annuities might be a great options for some investors, they are certainly not appropriate for all.
 
If you haven’t already maxed out your savings contributions in other tax-advantaged plans, 401(k)s and IRAs, it may not make sense to purchase an annuity. But if you’re retired or near retirement and you want a guaranteed income stream for a portion of your retirement portfolio, some financial advisors say you should consider buying an annuity. Some professional Financial Advisers said recommends putting no more than 25 to 30 percent of your portfolio into an annuity. “You want to make sure you leave some room for growth,” he said.

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