When you retire, you want to make sure that your money lasts. One way to do this is to invest in an annuity. An annuity is an insurance product that can provide you with a stream of income for the rest of your life. AG Morgan Financial Advisors discusses the benefits and the factors for safe investment.
There are different types of annuities, and each has its own set of benefits and drawbacks. It’s important to understand all your options before making a decision. This guide will help you learn more about annuities and how they can fit into your retirement plan.
What Is an Annuity?
An annuity is a financial product that provides payments at regular intervals, typically after retirement. The payments are usually made for the rest of your life, but they can also continue for a set period of time, such as 20 years.
Annuities can be used to supplement other retirement income sources, such as Social Security or a pension. They can also be used on their own to provide a steady stream of income.
How Do Annuities Work?
There are two main types of annuities: immediate and deferred. With an immediate annuity, you start receiving payments right away. With a deferred annuity, you delay receiving payments until later, typically after retirement.
With both types of annuities, you make a lump-sum payment (or series of payments) to the insurance company. The insurance company then uses that money to make payments to you.
The amount of your payments depends on several factors, including:
- The type of annuity you choose
- The length of the payout period
- Your age and health when you purchase the annuity
- Interest rates at the time of purchase
- Types of Annuities
There are two main types of annuities: fixed and variable. With a fixed annuity, your payments are guaranteed to stay the same for the duration of the payout period. This makes it easy to budget for expenses and plan for the future.
However, because your payments are fixed, they may not keep up with inflation. This means that the purchasing power of your payments may decrease over time.
Benefits of Annuities:
Annuities can provide a number of benefits, including:
- A steady stream of income: Annuities can provide you with a steady stream of income for the rest of your life. This can help you cover your basic living expenses and have money for leisure activities.
- Protection from inflation: With a variable annuity, your payments have the potential to keep up with inflation. This means that your purchasing power will not decrease over time.
- Tax-deferred growth: With a deferred annuity, your money can grow tax-deferred. This means that you won’t have to pay taxes on the interest until you start receiving payments.
- Death benefit: Some annuities offer a death benefit. This means that if you die before receiving all of your payments, your beneficiaries will receive a lump sum.
With a variable annuity, your payments can go up or down, depending on the performance of the investment options you choose. This means that your payments have the potential to keep up with inflation.
However, it also means that your payments could go down if the investments you choose perform poorly. This makes it more difficult to budget for expenses and plan for the future.