Is An Annuity Right For You?
When chosen carefully annuities can protect you against outliving your money and protect you against stock market volatility – features which are not available in traditional stock or mutual fund accounts. But, with his protection does come some restrictions and fees, which you must review before you consider an annuity purchase.
Keep in mind that most people who buy an annuity are not looking to increase their wealth. However, they are looking to replace their paycheck by generating a steady stream of guaranteed retirement income.
Here are some factors to consider if annuities are right for you:
- You like the idea of a guarantee—you’re someone who seeks certainty.
- You don’t have much existing guaranteed income. The average American gets about half of their retirement income from Social Security. If you’re planning on funding your retirement income from your portfolio, then you should consider an annuity, as opposed to someone who gets most of their retirement income from other forms of guaranteed income (like pension plans or Social Security retirement benefits).
- You’re in good health and have a family history of longevity. The longer you’ll live, the more the annuity is going to pay off.
If you’re interested in an annuity, think about them in three primary buckets:
- An annuity where the income level is fixed and starts right after you buy it (also called a single premium immediate annuity).
- An annuity where the income start is fixed and starts in the future, such as 10 years from now (also called a deferred income annuity).
- An annuity where the income will vary based on the performance of some portfolio (also called a variable annuity with a guaranteed lifetime withdrawal benefit).
Each of these three types could potentially work for you. The key is understanding how it fits into your overall retirement plan.
Everyone is different and, therefore, the potential benefits of an annuity are going to vary significantly by individual and household. It’s impossible to guarantee income for life from a portfolio. Therefore, as you reflect on how to build your retirement income plan, it is worth at least considering annuities.
Give us a call and let’s discuss if annuities are right for you.