In an article for Producers Web, Christopher P. Hill listed “10 reasons annuities make sense in a retirement plan.” Retirees are looking for a plan that allows them to spend their money and enjoy retirement but also protects them outliving that money. While annuities are not the right product for everyone, with careful consideration annuity products help many people meet their retirement income planning goals. You may not be looking for all of these particular benefits, but you can tailor an annuity to meet your specific needs.
Growth potential is the first benefit listed in the article. This is important to help you increase your wealth and can also allow many people to live off of their interest, rather than their principal. The amount of growth potential varies by the type of annuity product and the amount of risk you are willing to take on. Variable annuities offer the greatest growth potential but the most risk. Fixed annuities offer lower payouts when interest rates are low, but have little to no risk. Indexed annuity products fall somewhere in between. Annuity growth can help you battle inflation, taxes, long term care costs and increasing medical expenses.
Annuities also provide safety provisions against retirees biggest fears of losing money and running out of money. Most annuities have a contractual guarantee that will protect clients against running out of money, even if their account declines in value. The third reason listed is the tax efficiency of annuity products. Annuities can offer two different tax advantages. Your non-qualified money grows tax deferred within an annuity while accumulating and also gives tax-advantaged income during distribution.
Perhaps one of the biggest benefits of annuities is providing income that you cannot outlive. The average life expectancy for a male in 1933 when Social Security was introduced was 59 years old, but Social Security didn’t start paying income until age 62. Life expectancy for a male has jumped up to 85 years, so the nation is struggling with ways to make income last over these long lifetimes. Annuities are one of the only ways to create a lifetime income stream in the private market.
Another benefit of annuities is their income growth potential. In order for your income to grow, your assets must grow at a rate faster than your withdrawal rate. Most retirees aren’t willing to take on much investment risk in retirement, so annuity products are one way to safely expose some of your money to the markets. The sixth annuity benefit listed is the ability to maintain control. Annuities of the past forced people to give up all control of their money in exchange for a lifetime stream of income. Many annuities now offer clients more control of their assets during the accumulation and distribution phases.
You can still maintain access to your money with annuity products. Each product has different stipulations regarding surrender periods and charges, but most products allow money to be withdrawn in the case of emergencies or needed long term care. It is wise to keep money set aside for these emergencies and not bank on withdrawing from your annuity, but it’s nice to know you can often access that money if needed. Legacy planning is also important for retirees. Annuities offer many different full transfer benefits where your principal or even your highest contract value will be passed onto your heirs assuming no withdrawals have been taken. You can also add different death benefit riders to your annuity products to leave money to your heirs and even charities.
The article listed professional support as another important benefit of annuities. Retirement is a time when you should be able to kick back and relax and not worry about financial planning or spending because you’ve already made all of the plans. Annuities are usually bought through a financial professional who can offer advice and recommendations if needed or let your money work for you during retirement. Finally, annuities can help retirees consolidate their financial life in retirement. Certain annuities offer many different types of investment options that can help you consolidate your money, allowing for fewer financial statements and income coming from fewer sources.
These are ten unique benefits offered by annuity products that might make them the right fit for your retirement income plan. Annuities are not for everyone though and can range from simple to complex depending on the product type you consider. Do your research and speak with a financial professional at Annuity FYI if you have any questions about these products.
Written by Rachel Summit