Retirement—Freedom and Opportunity.
Retirement is as inevitable as it is enjoyable—for those who’ve prepared properly. It offers real freedom and opportunity. Preparing for retirement means you need to compare rates to search for the best value. Advisors can help, but a guarantee on your investment can be hard to find. When approaching retirement you’ll want to look at a range of investment services you can access. Particularly, an income stream that can last for life.
Investments are available in all manner of new products. Life after retiring requires income. Retirement income takes planning. Even with a skilled advisor, the actual return may be far different. Annuities offer lifetime income. If you’re looking for more information, you’ve come to the right place.
Fixed Annuities—A Safe Investment in Uncertain Times
What’s the most guaranteed way to turn your current income into retirement money? Lock it in the bank? Put it towards a bank’s CDs (Certificate of Deposit)? Mutual Funds? What if there’s a way to ensure that retirement income comes guaranteed—no if, ands, or buts.
No matter where you look there will be risk. These days risk in the markets is reaching a fever pitch. Can you trust your retirement to the stock market? Fixed annuities create income for life—guaranteed. Annuities used to be considered a weaker form of investment but with the stock markets growing more volatile by the year, it’s harder and harder to trust that money put in the market will be there when you want to pull it out for retiring. These income annuities mean a steady for of payment for the rest of your life.
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The Right Balance of Risk and Reward—Guaranteed
Annuities represent the right balance of risk and growth. The absolute safest option would be ‘no-growth.’ That is, the income you receive monthly comes from your savings account. The growth of a typical savings account is 0.06% APY. That’s a specific amount of nothing. To a bank, the reward you get for giving them your money is just a gesture on paper, nothing more. Sure, it’s guaranteed, but the average interest rate on an annuity is 4.5-5%. That’s an interest rate almost 100 times higher! Income annuities are the way to go.
Annuity income is guaranteed income for the rest of your life. You don’t get a do-over when it comes to retiring. It’s a one-time event. If you’re not prepared, you’ll have to live with the consequences. An annuity protects you when you retiring by providing guaranteed income pulled from an investment growing 4-5% annually. Not too shabby.
When looking for an income annuity, you’ll discover the invested money goes to an insurance company and not a bank. Why would you want to give money to an insurance company and not a bank? Think about it. You trust insurance companies all the time. You trust them with your car, home, health, and you even trust them to pay your beneficiaries after you pass away. You already trust insurance companies to take care of most of what you own. Whether you think about it this way, you already trust insurance companies with a lot.
Insurance companies study risk and rewards every day. It’s the bread and butter of any insurer. They’re the king of calculating risk. Fixed annuities are just another form of risk protection. In this case, it’s income protection. Income annuities are a form of income insurance, in a manner of speaking. But because the returns are guaranteed and fit a formula, the calculations are easy to compute. There’s no hidden math magic. There’s no volatile stock market. It’s a retirement investment that provides a lifelong income stream.
Annuities—Guaranteed Income for Life
An annuity is a contract between you and an insurance company. The insurance company agrees to pay you a set amount starting at a certain age. Your part of the deal is giving them a set sum of money at once or paying regularly for a set number of years. That’s how income annuities work. A partnership between insurer and customer that results in guaranteed income for life.
Annuities come in several forms. Income annuities include the following types of annuities—fixed index, variable, and immediate. They all derive from the basic description above but differ in how they accrue wealth and when the disperse it. All of the various income annuities can provide lifetime income. Variable annuities can provide the highest potential rate of return, but they rely in part on stocks. Immediate annuities have the lowest amount of growth, but that’s because they’re a form of an immediate payout. The money in an immediate annuity isn’t given time to grow. It is essentially savings turned into income payments.
The Hidden Advantage of Annuities—Tax Benefits
Many use annuities because of the tax benefits they provide. Money put into an annuity can be pre-taxed or post-taxed income. Income that is pre-taxed will not count that year toward the total amount of income reported on tax returns. Because of this, it is possible to lower the amount of income you report far enough to be placed in a lower tax bracket. A lower tax bracket means a lower tax rate which means paying less in taxes. It’s a feature that income annuities provide that can potentially shelter some of your income.
When the annuity comes of age after a period of time and becomes annuity income, you’ll have to include any pre-taxed income as an actual income for that year. However, since the amounts earned will be retirement amounts and lower, the income will again be lower than what it would have been if it had been taxed during the initial year it had been earned. It’s a simple way to protect income by making it tax-deferred. Tax-deferred income makes the largest difference for those with the largest incomes, but you might be surprised that this hidden benefit might allow you to keep more of your income overall. It’s worth checking to see if an annuity provides you a hidden tax benefit.
Annuity FAQ1. What's an Annuity?
An annuity is a contract between you and an insurance company. At the time designated by the contract, the annuity will pay, either a lump sum or monthly amounts. This can generate supplemental, tax-deferred income for retirees. Annuities are a form of risk-free investment that more and more retirees look towards as the markets maintain unusual volatility.
Annuities are simple. The payouts are agreed on far in advance. There’s no guesswork. No question marks to put in a budget. They’re guaranteed income. An income annuity can be a game-changer.
An annuity works in two phases. The accrument phase and the payout phase. In the first phase, the money grows either by being paid as a single sum and growing through interest or by being paid into regularly. The annuity usually sits 3 to 10 years to grow. An immediate annuity does not include this phase. This accruement phase occurs before retirement and in preparation for turning the amount of income annuitized into regular income post-retirement.
The second phase of the income annuity is the payout phase. At a set time, usually a set age, the annuity issues its payout. The payout can be a single amount or monthly payments. Either way, the manner of the payout has been agreed upon long in advance. Because it is a contract and the money does not reach the stock market, the returns are guaranteed and can be calculated exactly in advance. Annuities can provide guaranteed lifetime income. An income annuity becomes a life insurance policy why you’re still alive by providing a financial future for life. The guarantees of an annuity are unmatched and why many retirees turn to annuities for meeting their retirement needs.
An annuity of $100,000 will payout monthly depending on several factors. The age and gender of the receiver matter. A woman is paid less monthly than a man because women have generally longer lifespans and the amount will need to stretch further to cover her long lifespan. Also, if the payouts go towards a person and their spouse this will affect the amount received each month.
On top of these factors, the contract will stipulate who becomes the beneficiaries of the remaining amount upon the death of the annuity holder. If the remaining amount of the annuity is to be paid out to a family member, this reduces the amount paid monthy—by a small amount. How long the annuity is allowed to grow for will be another factor in deciding the final monthly amount available.
Putting it together in the simplest form, a man can expect about $670 a month from a $100,000 annuity that has matured. This amount represents the highest possible amount given. If the person were to die none of the remaining amounts of the annuity would pass on.
The monthly payout of annuities is worth considering because of how protected they are. Because there’s no stock market involved, annuities calculation is easy. It’s a set amount of income paid over a set period of time. It’s essentially deferred income and is treated that way for tax purposes.
No. This is why annuities exist and why they are used as guaranteed income. An annuity cannot lose it’s principal because it’s not in the stock market or other volatile investment opportunities. Annuities are like a CD in a bank because the money isn’t touched or moved after it’s been invested. It sits and grows on a known percentage.
The only way to lose money in an annuity is to withdraw money earlier than the contractually agreed time. If the annuity contract is meant to sit for 10 years and then ‘annuitize’ and begin being withdrawn from, you will have to take a penalty if you take out money earlier. The amount of the surrender penalty will be public and included in the policy from the date the contract is signed. This restriction imposed on annuities is the only downside of the agreement. You’re agreeing not to touch the money for many years. In return, you get the money paid back to you with interest. It’s a win-win.
What annuities lack in flexibility—though the terms have been agreed to by both parties—they make up for in certainty. A certain 5% interest rate is worth a 10-year wait. It’s worth noting that IRAs can contribute to an annuity and many decide to invest some amount of their IRAs into an annuity to receive the benefits of guaranteed income.
There’s no catch! You agree to the terms of the contract and, starting at the appointed age, you’ll begin receiving payments either monthly or on an annual basis. Many retirees purchase annuities because the benefit is life long. Many companies who sell life insurance also sell annuities, which, in a way, are insurance for life by providing lifelong income.