Different phases of life call for different sorts of financial planning and strategies to meet your goals. If you have decades to go until retirement, it makes sense to place your assets in securities, capitalizing on gains of the market in the long run. As you approach retirement, market volatility can wipe away your hard-earned nest egg. That’s one reason why annuities are a great option for those approaching retirement age, offering a guaranteed payout over time.
Learn more as we discuss what you need to know about annuities and how they could fit into your financial plan.
How Do They Work?
With an annuity, you pay a lump sum or make a series of payments, which then get paid out to you over the course of your life. There are two main types of annuities:
- Fixed Annuities: With a fixed annuity, you know exactly how much money will be paid out over time.
- Variable Annuities: With a variable annuity, the payout you receive is based on the performance of stocks and bonds that you select. This option can be appealing to those seeking the peace of mind of an annuity but who also want the prospect of higher returns. Some variable annuities even provide a guarantee that your payout will never fall below the principal you’ve invested, protecting you from a scenario in which the market goes down. This type of annuity, a deferred variable annuity with a guaranteed minimum accumulation benefit (GMAB), does come with higher fees, however.
When Do Annuities Start to Pay Out?
That depends on which type of annuity you select.
Immediate annuities are exactly what they sound like: You pay a lump sum and begin collecting regular payments right away.
Deferred annuities, on the other hand, don’t begin to pay out until a specific date in the future. Certain deferred annuities are more conservative (fixed annuities collecting interest) while others are more aggressive (variable annuities tied to the market).
What Are the Main Benefits of Annuities?
For many people, annuities provide peace of mind when it comes to their finances. It is a way to keep your retirement savings out of the market, while still accumulating gains over time and guaranteeing a payout for the rest of your life.
Annuities are also frequently appealing thanks to their customization. If you’re comfortable with a higher risk profile, a variable annuity might be right for you. If you are more conservative, a fixed annuity is likely the better choice. Annuities can even be designed to factor in cost-of-living increases, ensuring your payouts aren’t blunted by inflation.
Discuss Your Financial Plans for the Future
At Price Financial Services, we help clients find the best financial tools for their own specific needs and situations. For those approaching retirement age, we often feel annuities are an underutilized, valuable financial planning tool. Get in touch with us today to learn more about how you can incorporate annuities into your financial plan.