Retirement Annuity

Annuities are an excellent way to prepare for retirement. While most people purchase the obviously necessary health insurance, fire protection and vehicle insurance, many do not protect themselves against outliving their assets. A retirement annuity is designed to help you in your twilight years. Annuities are basically pensions that you purchase for yourself as opposed to those that your employer purchases for you. You can purchase a retirement annuity with a lump sum of cash or with payments over a specified amount of time. When you retire, this annuity is paid to you either in a lump sum or as monthly payments for the rest of your life.

A retirement annuity can be specifically designed to strengthen your financial plan when you retire. In most cases a fixed lifetime annuity with a cost of living adjustment done annually is the best choice for retirement. This helps to protect your future income from the effects of inflation. Fixed lifetime annuities provide a steady stream of income and are a guaranteed payment for as long as you live. While other retirement plans are often based on the performance of the stock market, a retirement annuity is not. You will receive your payments regardless of the performance of the stock market.

Although retirement annuities do provide a fixed income stream throughout retirement, they do often have drawbacks. You completely lose your flexibility with a retirement annuity as opposed to other retirement accounts. You should also note that all annuities are not exactly alike and many are not recommended for those saving for retirement. You will need to choose between a fixed annuity and a variable or risky annuity. If you do not fully understand the differences and the benefits and drawbacks of each type, you could find yourself very confused when it comes to choosing the best retirement annuity for your future.

A retirement annuity will provide you with income for life. You are guaranteed to receive regular payments for the rest of your life. Social security and other pensions do offer some form of retirement income but these are very limited. A retirement annuity is only limited by what you have right now. In other words, you will be living off of the annuity that you purchase now. If you have plenty of money to purchase an annuity now for your income in the future then a retirement annuity is a good choice.

They are also protected against inflation, while other retirement funds are not. You can fully customize your retirement annuity so that the amount you receive regularly will rise as inflation rises. This gives you a cost of living increase as needed. Of course, you should note that inflation protection costs more either in the initial amount that you use to purchase the annuity or in lower payments in the beginning of the annuity so keep this in mind when choosing your retirement account.

You should also consider that retirement annuities give you lower returns on your investments. Fixed annuities are considered to be very safe but you will also not have the potential to gain more than you invest like you do with stock market funds. If you are uncomfortable risking your future income then a retirement annuity is a good choice. If however you prefer the risk then another account may be best. Remember as well that once you purchase your annuity your capital is completely tied up in that purchase. You will not have the flexibility to put your money elsewhere if the market goes up. Most financial planners who specialize in retirement funding recommend that you set aside at least forty percent of your retirement funding for emergencies or otherwise unforeseen circumstances. If all of your capital is tied up in your retirement annuity then this will not be possible. Overall, whether you should or should not purchase a retirement annuity will depend on your specific preferences, your risk comfort level and the amount of capital you have now to fund your income in the future.

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