What You Need to Know Before Purchasing an Annuity
Living a longer, fuller life isn’t often seen as a dilemma. But unless you discover that ever-elusive money tree, an extended retirement can prove to be strenuous on your savings. Longer lives mean more years spent in retirement. While we are all grateful for those extended golden years, we need to plan our finances now so we can be worry-free post retirement.
Maintaining a comfortable lifestyle while managing increasing medical costs can feel overwhelming at times. Depending on how much money you have in savings, you may be looking to your social security benefits to begin footing many of the bills. But retirement savings can only be stretched so far before it begins to thin. Having worked hard for your earnings, you don’t want to lose your independence now or become a financial burden to your loved ones. But before you work yourself up into a frenzy, there is a simple way to increase the cushion you have in your finances before you land in retirement.
What is an Annuity?
An annuity is specific type of contract between you and your preferred insurance company. For a premium, the insurance company will make income payments to you for a certain period of time so that you don’t outlive your savings. This period may be a limited time span or for the rest of your lifetime.
How Can an Annuity Help you?
Unexpected expenses are a fact of life. From medical bills and inflation to weddings and spoiling grandchildren, the longer you live, the more expenses you will face. No matter how well you planned your retirement, there is always something that takes you by surprise. Annuities help to alleviate this concern by providing tax-deferred savings to help with living expenses.
There are many ways to create a nest egg for your retirement. You may already have a 401(k) plan and/or a pension plan, or annuities can help you make the most of your retirement funds. In your final years, you do not want the burden of financial stressors or to feel like a burden to your loved ones. As you live out your golden years, your time should be spent doing what you love with the people you love, not searching for a way to foot your medical bills or trying to minimize expenses.
What are the Different Types of Annuities?
There are numerous kinds of annuities and the options can feel overwhelming. It is important to understand first what you want or need from an additional retirement income. You can then begin to explore the different types of annuities offered.
Purchasing an annuity is a big decision and it can be very complex as well. If you are at all uncertain of whether an annuity is the right choice for you, set up a time to speak with a trusted insurance professional. They will be able to clarify any questions you may have surrounding how the process works and offer advice on what will benefit you best based on your personal financial portfolio, health status and long term goals. Some options you may discuss are:
- Fixed Income Annuities – This type is specifically designed so that you will not outlive your benefits. You may even choose to continue the benefits for the lifetime of your spouse or beneficiary. These are not dependent on the investment market. As the term “fixed” implies, this is a set amount you will be paid.
- Variable Annuities – This style is dependent on the performance of the specific investments in the income annuity.
- Guaranteed Annuities – Similar to fixed income, these provide a steady stream of income during retirement for as long as you live. However, they also have the added benefit of a cash refund that returns any remaining premium to your beneficiaries.