When it comes to accumulating income in retirement, annuities could be one solution to explore as part of your overall financial strategy.
An annuity is a contract you purchase and fund to receive money over a specific period of time plus interest. When you purchase an annuity, the insurer agrees to repay your money – plus the interest it earns – either in a lump sum or over a period of time you select. These products come in a variety of different specifications and can be used as fixed and guaranteed income in retirement. Some even offer the potential for significant growth.
Annuities are intended to help you fulfill your long-term retirement goals, so taking withdrawals or surrenders early may result in additional charges. Be sure to consult with a financial professional when considering annuities and always remember that guarantees are backed by the strength and claims paying ability of the organization or company you’re working with.
Below is a quick primer on the different types of annuities that are currently available:
Deferred Fixed Annuities
You can purchase a fixed annuity with a lump sum payment or with flexible premiums (several payments over time) and receive a guaranteed minimum rate of return. The insurance company will pay interest at a fixed rate which is usually established when you purchase your annuity. That rate is guaranteed for one year. In subsequent years, the rate may change as interest rates fluctuate but will never fall below the guaranteed minimum rate listed in the contract. These contracts will then pay out over a length of time you choose, including an option for lifetime income. A deferred fixed annuity may be right for you if you want guaranteed, dependable growth and plan to take income down the road in retirement.
Variable annuities have values that fluctuate over time according to the performance of the investment options and fixed accounts selected. Investments in fixed accounts earn at least a minimum interest rate guaranteed in the contract. These will also allow you to accumulate assets on a tax-deferred basis to help meet your retirement goals and will give your money the opportunity to grow faster because you don't pay taxes on earnings until you actually withdraw them.
Immediate annuities can help you turn assets or inherited lump sums of money into retirement income for your life, regardless of how long you live. Your income payments will begin right away. These products can provide a range of benefits including income options and you decide how to start taking income by choosing from several payout options. If you pass away during the guaranteed period, your beneficiaries may continue to receive annuity payments for the rest of the period or the present value of any remaining payments.
If you are nearing retirement and concerned about whether you have the right portfolio of products in place, annuities might be worth considering. You can also choose an annuity which may offer a higher interest rate for increased growth and can offer a sense of reassurance by providing retirement income.
As with any major financial decision, talk with a professional to understand what would work best for your specific situation.
This article was prepared by Thrivent Financial for use by Tri County Area financial associate John Lauer. He has an office at 3821 Main St. in Morgantown, PA. John can be reached at (610) 286-5986.