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I find that upon understanding how the right annuity for them works, people definitely want one of these financial vehicles as part of their overall income plan for one or more of the following reasons; they:

  • don’t want to lose money in the stock market but would like safe growth.
  • don’t want to outlive their money.
  • do want to provide their loved ones with a death benefit in the event of their death.
  • do want to protect their assets from being eroded due to long-term care expenses.

In last month’s article,6 Retirement Planning Myths – Part II“,under point number four, “Annuities are Bad–Misconceptions vs. Reality” we briefly touched on this topic. Here I wrote, “Here is the myth; some investment vehicles are ‘bad’ while others are ‘good’ (refer to misconception #2 from part one of that article). Financial instruments on their own are not inherently good or bad. Each option has the potential for its own pros and cons. What’s more important is understanding what financial vehicle you are considering and how it works when weighed against your personal financial needs and goals.

So What Is An Annuity?

An annuity is a long-term retirement savings vehicle that allows you to accomplish some or all of the following:

  • Preserving your assets by providing downside risk backed by the insurer.
  • Gaining tax-deferred growth.
  • Providing a guaranteed income stream for the remainder of your life.
  • Having options for leaving money to your beneficiaries.
  • Paying for long-term care expenses.

Two Phases

During the lifetime of most annuity programs there are two phases.

The first phase is accumulation and the second, distribution. They function just like those two words suggest.  During the accumulation phase, the account value and the future value of your benefits accumulate or increase. The distribution phase is when you tap into the balance and begin receiving income from it, generally in the form of income-for-life payments. To be general, the way your account may accumulate value and distribute payments are flexible and can either be decided upon at account setup or when you trigger the distribution phase.

Different insurance companies offer a variety of annuity products, each with their own features. On top of these base features, many annuity products come with optional add-on features, allowing for further flexibility. And so here is the value of having someone who both understands the intricacies of these different products and knows your unique financial situation so as to guide you towards the right product for it.

Here too is where annuities often get a bad reputation. If the financial professional one is working with hastily recommends an annuity product without taking into consideration their needs, goals, and other assets, then they could be stuck having a portion of their assets tied up in a product not right for them.

If protecting some of your retirement assets from downside risk and creating a guaranteed income stream are important to you then an annuity may be a good fit for a percentage of your assets. To inquire if an annuity may be right for you and how it would fit into your retirement plan, simply request a virtual or over-the-phone consultation with us here and we’d be happy to begin assisting you.

The first step toward achieving your retirement goals is having a plan…