Annuities are growing in popularity as a key financial strategy to add to your retirement plan.
People have had a huge wake-up call after the Covid pandemic about the importance of planning for the unexpected. It’s no surprise that everyone is rethinking their approach to living in retirement. With traditional pension plans dwindling, the future of Social Security uncertain, and the rising costs of health care, retirement planning has changed dramatically in the last few decades.
Whether your objective is to finish that Ph.D., hike the Appalachian Trail, start your own online business, or perfect your golf swing, you need to ask yourself:
Will I have enough money to retire and live comfortably?
Let’s redefine and rethink your approach to retirement income by including flexible retirement annuities. Here are the top 5 reasons you need to invest in one today.
1. You Won’t Outlive Your Retirement Money
If you are in or near retirement and you have some money set aside, an annuity lets you convert part of your retirement savings into a stream of guaranteed lifetime income payments. You can purchase an annuity with a single lump sum of money, called the “premium” or through flexible premium payments over time.
In return, you’ll receive a check (or direct deposit) on a monthly, quarterly, semiannual, or annual basis for the rest of your life. Most people choose to start receiving these payments either at or sometime after retirement.
The additional cash flow can allow you to take Social Security at an older age, maximizing your retirement income. You won’t have to worry about government funds running out or taking a second job.
2. Protect Your Savings From Market Volatility and Inflation
If you have money invested in the stock market, you know what a wild ride this year has been.
A common misconception about annuities is that they are always tied to stock market performance, which isn’t the case. Annuities are highly customizable depending on your individual concerns.
You may consider Variable Annuities if you’d like access to financial markets and growth potential through a wide choice of investment options.
If you prefer a safer, more stable option – a Fixed-Index Annuity may be right for you. In short, they earn indexed interest while protecting your principal from market losses. They combine the low-risk nature of a Fixed Annuity with the potential capped returns of a Variable Annuity.
Additionally, you can protect your money from inflation by adding a Cost-of-Living (COLA) Rider to your annuity. A COLA rider provides for increases in the monthly payments based on a measure of inflation. Your benefit payments can increase directly based on the Consumer Price Index (CPI), provided by the Bureau of Labor Statistics, or as a level percentage increase.
Take advantage of the upside while protecting yourself from the downside.
3. Receive Immediate Payments or Plan for the Future
Annuities provide financial security for both pre-retirees and retirees alike.
Pre-retirees can benefit from a guaranteed, sustainable way to maintain income in retirement and potentially higher income payments than they could achieve elsewhere.
Plus, a reduction of some market risk from their overall portfolio during the final years of their pre-retirement, when the consequences of a market downturn could be significant. A Deferred Annuitycan be planned years in advance giving your account the chance to grow tax-free.
Those nearest to retirement or already in retirement, are openly aware that while mutual funds can be excellent long-term investments, their value will fluctuate and may fall significantly in a recession. An Immediate Annuity is structured to begin paying income almost immediately upon deposit of a lump sum. In most cases, as soon as 30 days after. Because payments begin so soon, Immediate Annuities are popular among retirees.
Annuities can offer the security and peace of mind needed to face the future with confidence and bring you closer to your retirement dreams. The flexibility of annuities can help jump-start a customized retirement income solution.
4. Be Prepared for Unexpected Healthcare Costs
If you are like most Americans, health care is expected to be one of your largest expenses in retirement, after housing and transportation costs. But unlike your parents’ generation, you won’t likely have access to employer- or union-sponsored retiree health benefits. So, health care costs will likely consume a larger portion of your retirement budget—and you need to plan for that.
Approximately one-third of “early retirees” who claim Social Security at age 62 do so to help pay for health care expenses until they are eligible for Medicare coverage at age 65. But if you can postpone retirement or save enough to cover health care costs until 65, then you may be able to defer your Social Security benefits.
Generally speaking, the longer you can wait until age 70 to take Social Security benefits, the more you can collect, assuming you live a long life. As you plan for health care expenses throughout your retirement—however long it may be—understand how paying for future health care expenses fits into your overall retirement income planning efforts, because health care utilization tends to increase as we age.
Annuities are the financial vehicle you need to prepare yourself for any financial obstacle life throws your way, whether it’s taking care of yourself or your loved one.
5. Freedom to Enjoy Your Retirement the Way You Want
As retirement nears, you will have several big decisions to make, including when to stop working, when to take Social Security, how to pay for health care, and how to generate cash flow from your retirement assets. These decisions are interconnected and could make a difference in your living costs and lifestyle in retirement—and when you can retire.
Financial peace and security is the top reason you should invest in an annuity today. Instead of cutting costs and downgrading in retirement, redefine your retirement strategy to maintain your lifestyle or even better, create a dream retirement you deserve.
From checking off a luxury vacation on your bucket list to watching your grandkids walk across the graduation stage, an annuity is a financial cushion you need to push your retirement from good to great.