As you near retirement, financial considerations tend to be more of a concern than they were before. You should evaluate how you will afford to maintain your current lifestyle, and determine where that money is coming from. Be sure to calculate whether you will be paying taxes on it as well.
For some, an income annuity is the right choice to stretch their investments as far as possible into their later years. If you are considering whether an income annuity is right for you, it is important to first understand how it works. Here’s what you need to know about annuities in order to make an informed choice.
What Is an Income Annuity?
An income annuity is a means of converting some or all of your saved money into a stream of payments that are delivered to you at regular intervals. An annuity functions similarly to a paycheck, except it is you who is paying yourself out of your own invested money.
Annuities are a product that you must purchase, after which it will start distributing money on the schedule that you agreed to. Access to annuities is not limited to a certain age as with some other retirement vehicles, making it more attractive to those with more immediate needs.
How Do Annuities Work?
To buy an annuity, a “premium” is paid in an amount that funds the annuity. The amount that you put toward the annuity is the amount from which you receive payments automatically. While the majority of annuities are funded in a single lump sum payment, you may be able to locate options that permit you to fund the annuity over time.
When you agree to the terms of the annuity, you are establishing where the money will be sent, as well as how often. Most annuities pay out monthly, but you can choose other options of quarterly, twice per year or even annually according to your needs. Be sure you understand how funding works before you commit to a product.
Things to Know About Income Annuities
One of the primary benefits of an annuity is that you know exactly how much money you will receive and for how long it will last. For some people, this reduced risk of outliving their savings is worth it. For others, the value is in the flexibility of being able to withdraw more or less each month or year to suit their changing habits.
Unlike money invested in stocks and bonds, annuities are not affected by the market. The annuity income that you agree to receive is locked in; this amount will never change, no matter how the economy performs. This may exclude you from significant gains if the stock market jumps, but it also protects you from dramatic loss in the event of a market downturn.
The start dates of annuities are flexible; some allow you to fund the annuity well in advance of when it begins. You do not need to wait until you are ready to use the income annuity to purchase it. For example, you could choose an annuity with a payout date ten years from now.
However, if you intend to retire soon, many annuities begin paying out immediately. If you elect to purchase a deferred annuity, the minimum deferment usually starts at one year and rarely exceeds 10. Some options for up to 15 years are possible.
You may fund an annuity with the amount you determine. There are annuity options that allow you to combine multiple sources such as checking, savings, investments and inheritance to fund the account.
Some people are concerned that should they pass away before they have used the amount that was originally put in, their family may lose that money. The good news is that many types of income annuities come with options for a death benefit, such as a cash refund. In this case, if you die before using all of the money you contributed, the beneficiary will receive the remaining money.
Trust the Pros to Help You Navigate Your Finances
Income annuities are just one of many potential financial vehicles to fund your retirement, and they can be a valuable part of a balanced plan. Pillar Insurance offers a number of annuity options that may suit your needs.
Determining if an annuity is right for you is a very personal decision. At Pillar Life Insurance we have designed our products to let you be in charge. You can obtain more information in our FAQs section. When you are ready to buy, our customer portal will walk you through a step by step questionnaire which you can complete on your schedule.
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Try our annuity calculator and see how Pillar Life can grow your investment to meet your long-range financial goals.