What To Contemplate When Buying An Annuity
Saving for retirement is scary enough without the current state of inflation. Unfortunately, according to government data, inflation soared in 2021, rising 6.8%, the highest since 1982.
Annuities are seen as a strategy to alleviate the stress of running out of money on your retirement, but even they can come up short. People incur annuities for a guaranteed revenue stream by paying a lump sum or periodic payments to an insurance company. Money in an annuity will grow tax-deferred, but typically, the one you receive is taxed.
Just because an income is guaranteed does not mean it is inflation-proof. Plus, fees, returns, and other conditions vary widely depending on the company and the type of annuity. So to sort through the sales pitches, you will need to understand how to evaluate these products and pair them with annuity strategies to keep your retirement income ahead of rising prices.
Annuities can be added in several ways. You can start collecting income from a preset of time and choosing when to start receiving the payments. There is also the possibility of the annuities to pay you in a brief period, primarily within a month of purchase. As the name mentions, Deferred annuities delay the payments to give your money time to grow.
Another thing to look at is how the annuities contribute to your money. After the initial period, you are paid a certain amount that results from the market interest rates. Fixed annuities present themselves as the safest option because you can see how much your initial money will grow and how much you will receive. However, a possible downside is that the potential returns might be lower than the different types of annuities.
Variable annuities are slightly different; they are invested in market-based accounts where if the investments work well, the income is higher and vice versa. However, some annuity companies will guarantee a base monthly income level in the event that your account loses the total amount of money. Fixed index annuities are positioned in the middle of the previous two mentioned due to their participation in terms of risk and return. This has to do because their performance is bound to a market-based fund.
In the end, the choice between the different types of annuities relies on how important a guaranteed income is for you. A good example would be that if you want solid, stable guarantees, the fixed annuity would be the right for you. Whereas those who want more upside potential, their solution might rely on a variable or fixed index one.
An annuity will not be a good fit for you if you are trying to maximize your way of living at the start of your retirement. This is because an annuity solemnly intends to provide you with a different medium to add more income later in retirement.
At Copley Financial Group, Inc. with offices in San Diego, CA. and Uniondale, NY., we’re here to help you with any question that you may have. If you’re not sure what kind of annuity is for you, send us an email, give us a call, and the team and myself will be there to find the right fit for you.
