“Will my savings help me after I retire?”
It’s a common question that every person nearing retirement thinks about. To answer it confidently, many investors choose annuities to provide a reliable income stream in retirement. If, by chance, you are one of those people, then this is the right place for you. We will answer the most common questions about annuity for retirement income, which will hopefully help prepare you for a conversation with a financial advisor like David Alan Snavely.
Is an annuity right for your retirement goals? But before that, you might ask why you need a financial advisor at all. So the answer for that they can give you personalized advice based on your income needs that help protect you from uncertainty.
What is an annuity?
An annuity is a long-term insurance product that guarantees regular income to the investor. Annuities are a standard retirement income because they provide fixed and timely payments at regular intervals. Their earnings grow tax-deferred until you withdraw funds. Annuities not only benefit from regular income but also protect original investment for investor beneficiaries. David Snavely recommends the annuities to people so that they can run their lives effortlessly.
Now that people are living longer due to medical advancement so, they go through more market cycles in their lifetime. Here, annuities cover essential expenses to fill the gap between pensions or Social Security and other guaranteed and stable retirement income sources.
How do annuities work?
To invest in annuities, you need to pay a certain amount as premiums to the insurance company over a while before the annuity company starts paying you back. Annuities work through two different life stages commonly:
- Accumulation phase: During this phase, you pay premiums to the annuity company in a fixed amount for a limited time, or you can pay in a lump sum. It depends on the annuity type you are investing in.
- Distribution phase: This is the phase in which you invest in annuities. You will get monthly, quarterly, or annual payments according to the annuity contract terms.
What are the different types of annuities?
The annuities mainly have two categories — deferred and immediate. All the other types of annuities fall within these categories. The most common annuities are fixed and variable annuities, offering a range of options to meet your needs.
Deferred annuities:
- Fixed annuities: With these annuities, you will get a fixed rate of return with a guarantee that it will never fall below a minimum rate. These annuities offer guaranteed income payments for a specific period or as long as you live during retirement.
- Variable annuities: These annuities offer growth potential from the funds you choose. Additionally, they offer a guaranteed death benefit for your beneficiaries.
- Structured annuities: With these annuities, you will get opportunities for growth and a level of protection that can help eliminate some of the risks of investing.
- Fixed index annuities: They credit interest using a cap or spread based on the index performance.
Immediate annuities:
To invest in these types of annuities, you need to pay your investment in lump-sum to guarantee an income stream in return. Some of the immediate annuities provide income to your spouse or other declared beneficiaries if you die prematurely.
Other annuity factors to consider:
David Alan Snavley can help you evaluate the different types of annuities and consider your financial situation to determine which type is right for you. Your advisor will ask questions about:
- Timing of your first payout
- Your risk tolerance
- Payout period
Annuities are multidimensional financial products that can be equally important during your working years and retirement, according to David Snavely. You have more time to grow your money because deferred annuities offer tax deferral without paying income taxes on earnings. On the other hand, if you choose a variable annuity, you can invest in the stock market for growth and to protect your beneficiaries.