Do Annuities Make Sense For Retirement?
If you are approaching retirement age, you may be wondering about the best way to invest your money to prepare for a solid financial future. Do annuities make sense for retirement? What are the benefits? At My Annuity Guy, we want to help folks who are about to retire understand what annuities are, and why they may want to consider this type of investment as a way to prepare for solid, enjoyable retirement years that bring you peace of mind.
Simply speaking, an annuity is a complement to stock holdings, and not a replacement. There are various types of annuities which are basically a contract between you, the retiree, and an insurance company licensed in the state. This contract is designed to provide sustainable income for up to two individuals, and may be as simple as a set interest rate for a specific number of years, or indexed.
In an economy that is anything but certain given the changes to health insurance coverage, providers, and even Medicare and Medicaid, older individuals who are at or approaching retirement age have good reason to be concerned. Whether they will receive retirement benefits or a pension from an employer along with social security, or have other sources of income, knowing that you will not be working for the next 20 or so years but that you will have to provide for yourself and perhaps your family is a frightening proposition. You can invest in stock, bonds, mutual funds, and other products – but making the decision what to invest in can be unsettling and even frightening. Are annuities a good choice for retirement?
If you fall in a high-income tax bracket, investing in annuities definitely makes sense. If your IRA, 401(k) or other tax-advantaged investment vehicles have maxed out or if you have the financial resources to set aside for your retirement years, definitely consider annuities for their tax-favored growth—whether inside or outside of your IRA!
The future is anyone’s guess, given that more and more people are becoming self employed and must provide for their own retirement. Unlike in the past, employers are not providing pensions. Instead, they are forced to put their money at risk to try to achieve income goals. Things are definitely questionable, and unfortunately, many wonder what will really happen to their lives when they enter retirement.
So, what are the benefits for folks who choose to invest in annuities?
Annuities are the anti-dote to uncertainty in retirement. No pension? No problem. The right annuity can guarantee a reliable retirement income that cannot be outlived. But choosing the right annuity depends on your priorities. Basically, there are fixed, fixed indexed, and variable annuities. Because annuities are similar to tax-deferred retirement plans, investors will face a penalty if they withdraw money before they reach age 59 1/2. However, if the annuity is held outside of an IRA, the up side is that annuity owners are not required to begin taking minimum required distributions at age 70 1/2, as with many other tax-deferred retirement plans. If the annuity is held inside the IRA—a growing trend—the income from the annuity typically more than satisfies all minimum required distributions, putting that issue on “automatic pilot” with a permanent and simple solution.
As mentioned earlier, owning an annuity is recommended for individuals who have contributed the maximum allowed into other retirement plans.
Annuities may possibly be beneficial when an individual files bankruptcy, and needs to shelter other investments.
Perhaps most important of all, annuities provide a lifetime income guarantee for those who would feel safer knowing that income will be coming in month in and month out, without the fear of running out.
Essentially, individuals who are facing retirement and who fear they may outlive their income enjoy peace of mind, as an annuity is an insurance policy on your income, offering stable protection even in a downturned market.
There are several tax benefits of investing in annuities as part of your retirement plan. Annuities can replace the bond component in your overall asset allocation. Experts now repeatedly warn of the risk and danger in safe sounding bond mutual funds and ETFs, which are vulnerable to principal loss if interest rates in the general economy rise. There are instances in which you may gain some tax advantage, such as in the case of individuals who have high-yield bonds or portfolios with other inefficient assets or substantial turnover. In addition, you will only pay taxes at the time you actually take a distribution, which puts you in control of when you pay taxes.
To learn more about the various types and categories of annuities and whether an annuity would make sense for your retirement, contact the dedicated staff at MyAnnuityGuy.com at (888) 310-1776. You will receive confidential and professional assistance without sales pressure. As Accredited Members of the Better Business Bureau, you will always be treated with respect and courtesy.