Annuities have been a source of income since the Romans. Even then, people found a way to turn a profit on the money they were already making. Today, annuities are mainly associated with retirement savings plans. An annuity can help you grow tax-deferred savings in your working years, and when you’re ready, you can receive your annuity funds as a steady income stream for retirement.
Read on to learn more about how annuities work, and how an annuity can help you reach your retirement goals.
The money you invest in an annuity builds interest on a tax-deferred basis. Unlike putting money into a 401K, some annuities allow you to withdraw a percentage each year without penalty. This kind of flexibility makes maintaining an annuity somewhat easier than many other retirement options.
You can choose between plans that will either pay one lump sum or distribute a series of payments. When you reach retirement age, you will have the ability to choose how much money you receive for each payment and how often you receive payments.
Income annuities work as a form of insurance protection that guarantees the buyer a source of income for a given period. You would make payments towards the annuity until the time comes to start receiving payments. The payments you make during the life of the annuity are tax-deferred and grow until it’s time to withdraw money.
With that in mind, you can customize your annuity plan much more than other retirement options. In the case of an income annuity, the payouts you receive will be based on the accumulated wealth of the account, which is reflected by however much you decide to pay into the annuity.
There is no underwriting process involved with purchasing an annuity — they are considered guaranteed issue, so you won't need to pass any type of medical exam to qualify for an annuity. This accessibility makes annuities a popular option when planning for retirement .
There are several options available when you're shopping for an annuity. While fixed, indexed and variable annuities are meant to build wealth for the owner, most people prefer to go with a type of income annuity for its reliability. It’s important to know that income-based annuities come in many different forms, with adjustments to meet different situations, so you'll want to target which type best meets your financial goals.
Deferred annuities, also known as income annuities, are specifically designed to generate income after retirement. There is an amount of security when you choose a deferred annuity. The payments you receive, typically designed to begin ten years after the investment, are based on the lump sum you originally invest in the annuity.
A deferred annuity involves little risk, as opposed to wealth-based options, and is straightforward in how it can be set up.
One of the perks of an annuity is that some policies allow you to choose when you begin receiving payments and how often your annuity pays out. With deferred annuities, you can receive a lump sum as it was deposited, or you can choose to receive monthly payments, depending on how you wish to budget your retirement.
What’s more, owners of an income-based annuity also have the option of laddering their investments. Essentially, laddering is a strategic approach to investments that takes advantage of the flow of the market by investing separate amounts of your deposit at different times to maximize your original amount.
With laddering, you can opt for the lump sum option, while also making a series of deposits to pay out at different times. This way you are investing in potential increases for each lump sum, and since they’re all guaranteed interest rates, you can have a little more control of the payout.
One of the greatest benefits of owning an annuity is the ability to plan for the future with a good estimate of your return. Unlike other retirement investments, a deferred annuity allows you to understand an approximate amount of the payouts that you will receive. The carrier you choose will provide you with an illustrated projection based on how the market is performing at the time.
As mentioned earlier, you can strategize by using annuity laddering to increase these amounts from year to year. Because of this, investing in an annuity helps you create a plan for how you’d like to receive your retirement money.
If you’re looking for a guaranteed source of income in retirement, a deferred annuity is an excellent option. Instead of outliving any savings you have prepared for retirement, an annuity guarantees you have access to a steady source of income based on the money you made before leaving the workforce.
If you are ready to take the next step to reach the retirement you desire, we can help: Get in touch with a Symmetry Financial Group agent today!