How Annuities Fit Into Your Retirement Savings Plan

One of the few nearly universal desires held by a vast majority of Americans is to enjoy a worry-free retirement. Annuities are a unique long-term investment product tailor-made by insurance companies for the specific purpose of providing guaranteed income in retirement.

Incorporating annuities into your plan may add a measure of financial security to your future and allow you to look forward to retirement with a little less anxiety.

Understanding Annuities and How They May Fit Into Your Retirement Plan

In simple terms, annuities are investment products in which you make a large upfront lump payment or a series of payments to fund it. The insurance company then guarantees you’ll receive payments starting either right away or on some specified future date.

The two primary types are immediate and deferred annuities. An immediate annuity starts paying out soon after you make your investment, making it suitable for those nearing retirement. A deferred annuity begins payments at a future date. Deferred annuities provide a period for your investment to grow tax-deferred, making it ideal for younger investors.

The Role Annuities Play in Retirement Planning

Nearly every retirement savings investment option comes with some degree of risk. Annuities are somewhat unique in that respect because some offer a nearly risk-free, guaranteed income stream. While many retirees don’t rely entirely on annuities for retirement income, this level of reliability makes them a key component in many retirement plans, especially as a safety net.

Securing Life-Long Income

Having some type of guaranteed income for the remainder of your life is an essential aspect of retirement planning. Annuities may not boast the highest potential nest egg growth, but it does offer unbeatable dependability, which many retirees value more than portfolio growth.

You can worry less about outliving your savings if you know you have annuities to fall back on. There are many different types of annuities with varying terms. It’s a good idea to discuss your options with a retirement planner. They can help you identify the best annuity product to help you establish steady income in perpetuity.

Tax-Deferred Wealth Accumulation

Tax-advantaged retirement savings plans are an essential aspect of retirement savings for every household. Annuities boast tax-deferred growth potential, meaning the annuity holder doesn’t have to pay interest, dividend or capital gains taxes until the funds are withdrawn and taken as income. The lack of taxation allows the funds in the annuity to grow at an accelerated rate.

Shield from Market Volatility

Young and old investors alike share the same misgivings about economic uncertainty and market volatility. Those concerns hit harder when you’re nearing retirement or are in retirement and relying on the value of your investment savings to fund your lifestyle. Like any low-risk investment, annuities are not renowned for their high returns, but they do offer a safe haven from the risks inherent in the market. This makes annuities particularly attractive during market downturns. 

How Annuities Can Be Incorporated Into Your Retirement Plan

Risk Management

Minimizing risk is an absolute must in any retirement plan. There are a variety of ways to balance risk with all types of retirement savings strategies, but annuities are one of the most straightforward and reliable tools for accomplishing the goal. Investing a portion of your nest egg into annuities offers a guaranteed stable income base, enabling more risk flexibility in your other investments.

Planning for Longevity

No one disputes that living longer and healthier lives is a great part of modern life – but it does present some complications in terms of retirement planning. Annuities can help ensure you don’t outlive your savings.

Protecting Your Spouse

Certain types of annuities, like joint and survivor annuities, offer features that provide income for a surviving spouse after the passing of their husband or wife. This can be an invaluable tool for couples nearing retirement.

Are Annuities Right for Your Retirement Plan?

Annuities are an invaluable tool for many retirement savers, but they’re far from the only retirement savings option. For many savers, they’re just one part of a cohesive plan that balances asset growth with risk management for long-term financial stability and reliable retirement income generation.

If you would like to learn more about annuities and what types of annuities would be best for your retirement savings plan, schedule a consultation with the retirement planning professionals at Fullerton Financial Planning. Call us at (623) 974-0300 to speak with an advisor today.