Annuities for Dummies

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At some point, it will be time to hang up the worker’s hat and hand in your retirement notice, but what will you do about your monetary situation? You may want to look into an annuity as an option. Below is a cheat sheet regarding annuities for dummies.

What is an annuity? An annuity is a relatively low-risk investment product that ensures you receive a steady income for the rest of your life. People typically buy annuities to manage their money during retirement. Owners tend to have a strong loyalty and commitment to their annuity purchases; roughly 93% report that they still own their first one.
Buying annuities: You will first need to pay a life insurance company an annuity lump sum payment at the beginning of your contract. That insurance company will then invest your money. The resulting profit of the investments will fund the payments that you receive once you are 59 1/2 years old — which is the beginning of the payout period for most annuities.

Types of annuities: There are many types of annuities out there, the most common being deferred annuities, which prevent you from receiving monthly payouts until you have reached retirement. These are broken into two kinds: Fixed and variable. Fixed annuities offer a guaranteed rate of return throughout the contract. Variable annuities allow you to invest money in separate accounts and are tax-free.

Is an annuity right for you? Eight out of 10 non-qualified annuity owners have a household income below $100,000 and they cannot afford the financial risk of investing a large amount of money they won’t see until retirement.

Things to keep in mind about annuities: So you’ve reviewed what an annuity is, what it does, and the types, but there are a few important things to know about this retirement option.

  1. The annuity world changes. Some people used to by one kind of annuity, now they buy another. Those in their fifties right now will most likely be buying income annuities later.
  2. Annuities allow for creativity. Didn’t think people could get creative with how they generate retirement money? You may be able to maximize your retirement income by purchasing three different kinds of annuities.
  3. You will need leftovers. Decide how much money you will need to keep outside your annuity because, after all, you may still need a large chunk of change easily accessible to book that European cruise. Plan to leave money in more liquid investment accounts.

For more questions regarding annuities, don’t hesitate to ask your investment account manager or a trusted financial advisor. More can be found here:

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