Who Wouldn’t Want A Reliable Stream of Income At Retirement?
Drawing from a stream of income when you retire sounds ideal, but is it a real possibility? Sure it is if you know where to find it. But you may not like where you find it.
We get to choose where we invest our money before, during and after retirement. You can choose risky investments, middle of the road ones or go the conservative route. Certain investments work better during your working years while others are better for your retirement years. Your working years are for building. During your working years you want to choose investments that will grow your money, or at the very least maintain its value. Investments that work best for that goal are stocks, bonds and mutual funds. Now those types of investments can be a bit riskier but the payoff for that risk is a greater rate of return. A certain amount of risk fits well with a goal of investment growth. Your
Once you retire however you would want to steer towards investments with less risk and greater stability. Most retirees choose investments that preserve the value of their investments. This is sometimes referred to as capital preservation. So once someone retires the wiser choice of investments is usually more conservative, less risky investments. Your retirement years are for withdrawing. Less risk makes sense since the money you retire with has to last the rest of your life and that can be 20 or 30 years.
The Sure Way To Outlive Your Money
So here you are, ready to start thinking about your final working years and then your retirement years. You did all the right things, made all the right financial moves. You have saved and invested wisely for the last 30 years and have a nice size portfolio of stocks and mutual funds. Now what? As you get closer to retirement age you start to worry about the size of your portfolio. Did you really save enough? Will your money last 20 or 30 years? Can you afford to retire? Should you keep working to earn more and save more? Well if you are like most people that worry about outliving your money once you retire is real. Let’s talk about a way to change that.
Due to the bad reputation developed over the years, you may not like the investment we’re about to talk about. But stick with us because this investment will help you overcome the worry of living longer than your savings. The investment I am referring to is annuities. Unfortunately the word annuity conjures up so much negativity that most people tune out whenever they hear that word. And that’s too bad because annuities within a portfolio bring stability and predictability. When you retire and your flow of income stops, just crossing your fingers, hoping the market doesn’t drop is not very stable or predictable either. So what do you do?
Misunderstanding and mistrust is the main reason annuities have a bad reputation. The key to buying annuities is to understand them and what they are all about before you buy one. And, most importantly, to trust whomever you will buy them from. They are not a bad investment choice if they fit your investment goals.
PRO’s and CON’s of Annuities
- Used as a reliable source of income
- The payout is predictable
- Pays out a fixed amount of money, creating a steady stream of income
- The payout is guaranteed for life
- You cannot outlive the stream of income
- Relieves the fear of outliving your money
- The fees can be higher than other investments
- Unlike other investments, with annuities you are locked in. Closing out an annuity too soon could cost you in surrender charges
Trust The One You Pick
As with any advice you seek, you want to trust the one you seek it from. The same is true when you look for investment advice, especially when that advice effects your retirement. So trust the one you pick.
Where to start? Insurance companies, financial brokers and banks sell annuities, so start there. You want to work with an advisor that listens to you, works with your goals and makes sure you completely understand what and why you are buying the annuity. The advisor should determine if you have other sources of retirement income? Where that income is coming from? How much of that income is guaranteed? How much, if any, Social Security will you receive? What are your expenses? How much income will it take for you to live independently for 20 or 30 years? The advisor should use all of the answers to those questions to determine if an annuity is right for you. And if it is, which type of annuity would work best.
There are many different type of annuities. There are fixed, variable, indexed, equity indexed and immediate. Have your advisor explain the differences between them, the different fees associated with each and how each one may or may not be to your advantage. And if you do not understand the financial jargon they may use, do not be afraid to ask questions.
Commissions are higher on annuity sales so have the advisor tell you how much money they will make. Higher commissions is not a reason to avoid buying them if they fit your investment strategy, just be aware.
Are They For You
Annuities are not the right investment for everyone. Some people need a steady, predictable stream of income, some do not. They are not a bad investment if they work for you. Forget about the bad press annuities get. Do your own homework to determine if they are good or bad. Only you know what works or doesn’t work for you.