Can annuities work to your benefit as a source of funds at retirement?

Some financial planner say that annuities can work – but others say not.  You will need to make that call.

We want to help you make that call by talking about the sources you could have available to pull your income from at retirement.   Then examine how  annuities could fit in nicely as one of those income sources.

The best way to have a strong retirement is to have several sources of income available to yourself.  One source of retirement income by itself will probably not carry you all the way through your entire retirement.  Having multiple sources of income to rely on will make your retirement a lot less stressful.   If one source dries up or weakens as a source, you will have the other income to rely upon.

Let’s analyze the different sources of money you may have available to you at retirement.

Sources of Money At Retirement:

Social Security:

  • Social Security may be an income source.
  • Social Security will probably be your weakest source.
  • Depending upon when you plan on retiring will determine if there will be any money at all from Social Security.
  • Social Security does not give you much of a guarantee stream of income.
  • And even if you do get any social security, the amount of money you receive will probably be very small;  definitely not enough to live on.

Your 401k Plan:

  • Another source of money you will have is your retirement plan from work.
  • This could be your strongest source of income if you maximize your 401k contribution limits every year and take advantage of any employer matching that may be offered.
  • You can take a lump sum payment at retirement.
  • You can rollover your account balance to an Individual Retirement Account.

Your Personal Savings:

  • Your Individual Retirement Accounts; Roth and or Traditional.
  • Stocks, bonds and mutual funds that you own outside of your retirement accounts.
  • Any certificates of deposit.
  • Any real estate.
  • Your life insurance policies.

Annuities:

  • Supplementing retirement plans is one of the main uses of annuities.
  • The attraction to annuities is the guaranteed lifetime stream of income that they offer.
  • Annuities can help make sure that you do not outlive your retirement savings.
  • That guaranteed stream of income that you cannot outlive is only offered through an annuity.
  • Individual Retirement Accounts,  401k accounts or certificates of deposit do not guarantee a stream of income that you will not outlive.
  • Annuities offer a living benefit and a death benefit.

Two Types of Annuities:

Talk with your financial planner as to which type of annuity may meet your financial needs the best.

Income Annuities:

  • Usually purchased for a lump sum.
  • The payout begins as soon as you purchase the annuity.
  • It pays you an annual income in monthly installments.
  • The stream of income is usually for the life of the annuitant, depending upon the type of payout option was purchased.
  • Income annuities can be a fixed or variable annuity.
  • A Fixed annuities pays out a set amount of income.
  • With a variable annuity the payout can vary because it is tied to mutual fund type investments called subaccounts.

Deferred Annuities:

  • You can make regular deposits into a deferred annuity.
  • Payouts are scheduled out to a future date.
  • The earnings grow tax-free until you start to pull out the money.
  • Deferred annuities can be a fixed or variable annuity.

To make your retirement strong and stress free hopefully you now see why you need several sources of retirement income.  And you can now analyze your own sources of income that could be available to you at retirement; and make any adjustments that you need to.

Annuities can fit into your retirement plans if you are looking for one of your income sources to outlive you.   Talk with your tax adviser or financial planner on whether or not annuities fit into your retirement planning.