When it comes to personal finance and retirement planning, there is no one size fits all method to follow. Every circumstance and situation creates a need for a different approach. What might be right for you could be the worst option for another retiree.
Usually, an annuity becomes an option for a retiree when they have maxed on more traditional tax-advantageous investment options, like 401(k) and IRAs. As CNN Money noted, “If you have additional money to set aside for retirement, an annuity’s tax-free growth may make sense – especially if you are in a high-income tax bracket today.”
Annuities certainly can be a buyer beware-type atmosphere. Without the proper analysis of your potential investment, you could be investing in a lemon when you wanted stability. It’s why I always stress the mandatory need for thorough research conducted before taking the plunge. Not only should you ask every question you have to your finance professional, but you should research these answers yourself as well. At worst, you’ll find the same information your professional presented you, and now you’ll have more material to make the best decisions for your retirement.
If you’re uncertain if an annuity is right for your investment plan, see if you fall into these situations:
Outliving Your Money? Guarantee Your Income
For those worried that they might outlive their money, an annuity could be the option to ease their fears. With life spans extending and markets always susceptible to volatility, many annuities ensure that you are taken care of regardless the scenario. Immediate annuities could be right for you. Another option to consider is investing in multiple annuities to protect yourself from an insurer potentially going under.
Depending on your advisor, you may hear that an immediate annuity is best. Others might suggest an inflation-adjusted investment to protect you and your heirs. Again, it’s all about what fits you best. Consider all the elements that go into your planning. You have to factor in the annuitant’s age, investment amount and other key factors before determining the proper course of action. If you choose correctly, you can breathe easy knowing your income is ensured while protecting your principle.
The investment landscape shifts as interest rates go lower. As they do, traditional conservative options, like CDs and money market accounts, prove less like the tried and true method they once were.
With annuities, you have various options to match your investment as well as your risk tolerance. While I highlight seniors in this category, any conservative investor could be a fit for an annuity–especially a fixed option. Not only will this conservative approach ensure you have a lifetime income, you now have the opportunity to earn more than other options. The aforementioned CDs and money market accounts definitely have earning potential, but an annuity may be the right fit for you if you’re the kind of conservative looking to generate the most return on your investment.
When comparing money market and bank CDs to a fixed annuity, you begin to see that the annuity investment is the only option that guarantees you income for life. Additionally, it’s tax-deferred accumulation benefits are often alluring to those otherwise considering a non-qualified investment.
Certainly, other individuals fit the bill for an annuity investment–and some in the above instances might be better on another route. However, these are some options worth considering as you move forward in your planning.