Should Annuities Play a Role in Your Retirement Planning?

Posted on January 31, 2009
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With the thought of retirement looming in your future, the importance of a regular monthly income during your golden years grows greater.  Annuities play a main role in retirement planning because they provide that regular stream of income you need to enjoy retirement living.

 

Annuities 101: Which is Right for You?

 

Annuities are all around us.  Most of your retirement options are in the form of annuities: company pensions, IRA’s, 401(k)’s.  All these are capital investments made by you or your employer over time that will eventually provide you with a series of regular payments, which is the definition of an annuity.  But what if you have contributed the maximum into your 401(k) or IRA account or want another retirement investment strategy?  Is an individual annuity a good investment strategy for you?

 

An annuity contract can be immediate or deferred.  If you are planning for retirement, you will want a deferred annuity that delays regular payments to you until you are at least 59-1/2.  Until you begin receiving payments, you can pay a lump sum or regular monthly payments into your annuity account, very similar to an IRA or 401(k).  In addition, similar to other retirement investment options, contributions and earnings into an annuity are tax deferred, which is a good option if you plan to be in a lower tax bracket by your retirement age.

 

A retirement annuity can be a good option if you have the money and time to invest in them.  Annuities can be expensive to start because of the large lump sum deposit or larger monthly contributions.  Additionally, unless your annuity has at least 15 to 20 years to mature before regular payments are distributed, you won’t experience much return on your large investment.

 

Types of Annuities

 

The most popular types of annuities chosen for retirement accounts are fixed annuities and variable annuities.  These annuities offer conservative payment options or more investment control respectively for the annuity purchaser.

 

Fixed Annuity – A fixed annuity provides a fixed rate of return as agreed in the annuity contract and a fixed regular payment amount at retirement.  Though payments are fixed, you can choose an option to increase payment amounts by 3% to 5% each year for inflation.

 

Variable Annuity – This type is the most popular annuity type.  Variable annuities allow you, the investor, to decide how to invest your funds.  You can chose from a number of mutual fund type investment options called “subaccounts” offered by the annuity provider.  Though by law annuity funds cannot be directly invested into mutual funds, subaccounts offer similar diversified investments in stocks, bonds, and money market accounts.

 

Annuities are usually purchased as a contract from an insurance company through the help of a broker or investment counselor.  Contact a retirement professional  at www.iamllc.biz and work with them to determine which annuity is right for you.  As with any retirement plan or investment, it is wise to seek help in understanding more about the best investment options for your retirement.   Visit www.kenhimmler.com for valuable information on this topic.

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