Planning for retirement by securing income in the post-employment years is one of the greatest financial challenges that most individuals will face during their lifetimes.
While many are familiar with 401(k)s, Roth IRAs, and other retirement vehicles, fewer are aware of annuities as a possible solution for their financial goals. Annuity options for retirement range based upon how they accumulate, how much risk is involved, and even how they provide payments.
Here are some of the key factors for evaluating annuity options for retirement income to help investors make an informed decision about which product is right for them across the spectrum of available annuities.
One of the primary factors to consider when evaluating annuity options for retirement is how risk averse the investor is. Some individuals are willing to accept a greater level of risk in exchange for the chance of a higher reward when the market performs well.
Others are unwilling to bargain any of their invested income and want a guaranteed return, even if this return comes at a lower rate. Annuity options for those with a higher risk tolerance include variable and indexed annuities.
Both of these types track the activity of the stock market (or a specific index), so when markets are bullish, the value of the annuity will increase more quickly. However, this exposes the investor to a level of risk, as a bear market can decrease the accumulation potential of the annuity.
Those unwilling to accept risk are more suited for a MYGA, or multi-year guaranteed annuity. This product has a guaranteed rate that is not affected by the market.
MYGAs, unlike other types of annuities, will not provide regular payments. Instead, the money simply grows for the duration of the term. After this, the MYGA can be rolled into another type of annuity that begins generating payments. A MYGA calculator can identify rates that are currently available.
Another factor that influences the appropriate annuity options for retirement is a person’s unique financial goals. If seeking the consistency of regular payments, annuities in general are a good choice.
Of these, fixed annuities are likely the superior option, since the payments will not be impacted by market conditions and the investor can plan for the exact payment amount they will receive.
Others may be more concerned with ensuring that their money has a safe place to grow without the risk posed by the stock market. MYGAs are a good option here.
Those who have a large sum of money to leverage for accumulation can use a SPIA, or single premium immediate annuity, to securely hold their money while receiving periodic payments. Annuity terms can be selected strategically to adjust the payout amount and ensure that a person’s financial goals are met.
Term and Access
Annuities function across a term which defines the number of years over which the annuity account is active and performing its assigned role. In general, a shorter term will come with a slightly lower rate. However, annuities are a secure place to hold money, which means it is difficult to remove it once contributed.
Knowing this, retirees should consider the right term based on the likelihood that they will need to access the lump sum. Some types of MYGAs and other annuities can include withdrawal provisions allowing up to 10% of the balance to be withdrawn each year, so be sure to carefully examine the details of any annuity you are considering.
Many types of annuities can be set up to pay out for a person’s entire life so that they always receive guaranteed income after retirement.
Age and Beneficiaries
The right annuity for an investor will also depend on their age and whether they have dependents or intended beneficiaries. Payments spread across the rest of a person’s life will be lower than those condensed into a five-year term.
Thus, those who open an annuity as soon as they retire must consider how a longer term could impact their payment amounts. Similarly, it is important to choose annuities that come with the appropriate beneficiary provisions if this is a part of an investor’s overall financial picture.
Most annuities can be tailored to include death benefits, which provide the remainder of the annuity’s value to a spouse or other beneficiary once the primary account holder passes away.
Choose the Annuity That Suits Your Goals
The right annuity for any individual is going to be unique to that person’s financial situation, goals, lifestyle, and more. That is why Pillar Life Insurance provides the option for investors to choose an appropriate annuity for themselves without the hassle of speaking to an agent.
Visit our website to complete a simple questionnaire that can get you started on the road to finding the ideal annuity for your situation.
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Try our annuity calculator and see how Pillar Life can grow your investment to meet your long-range financial goals.