Annuity For Retirement
Baby Boomer as set to retire and annuity business is up to 200 billion dollars a year. Does it make sense to buy an annuity for retirement? Here is an introduction into annuities to give you a better understanding of how they may help you.
What is an annuity?
There are many variations but in general, it is an insurance contract between a person and an insurance company. The appeal of annuities are the guarantees they offer. What they guarantee can vary greatly depending on the type purchased.
How is it different from other investments?
Annuities offer guarantees like pensions and fixed returns like CD’s. The difference is that annuities will often pay out a much higher guaranteed interest rate than a CD. They have multiple advantages over pension plans as they do not make you forfeit your lump sum investment when you die. They also have features built in that can provide better protection against inflation than a pension can.
How many variables are there?
The most basic variation on an annuity is the option of choosing between a deferred annuity and an immediate annuity. An immediate annuity allows you to pay a lump sum up front for periodic payouts until you pass. A deferred annuity is just what it sounds like: an initial lump sum contribution made with subsequent periodic payments during the accumulation phase. It is up to the policyholders to decide when to cease contributions and start payouts. There are also variations on these products such as Immediate with installment refund, 20 year certain, etc…
Another difference in the annuity world is fixed annuities vs. variable annuities. Fixed rate annuities are well suited for the risk averse, as they promise a guaranteed interest rate. Fixed rate annuities can be immediate or deferred. Variable rate annuities let you play in the market but still offer a guaranteed death benefit and income stream.
Is it right for me?
Just like any other investment, the annuity you choose needs to be the right one for your situation. Consider what you are trying to accomplish and then find the right annuity to fit that need/goal. Choosing the wrong type of annuity for a given situation can have very negative effect son your retirement. If you do your homework and obtain good advice, an annuity can play an important and useful role with a portion of a portfolio to insure a secure retirement.