When planning for a stress free retirement, ensuring that you have enough money to sustain your post-work lifestyle is key. Traditional retirement accounts such as 401K accounts and IRAs are helpful, but what guarantees do they offer that you will not run out of money? If this questions concerns you, you may want to consider incorporating an annuity retirement option into your retirement financial plan.
Using annuities for retirement can offer you security in the knowledge that you will receive a guaranteed monthly payment for life. It is not often in the sea of retirement plan choices, that you find an investment vehicle that guarantees you a payment whether you live 20 years into retirement or 50. When you purchase a single-premium, deferred annuity with a lifetime payout option, you get this guarantee.
Single premium deferred annuities work exactly like you'd think. You pay a single premium into the annuity, and the lifetime payout is deferred for a period of time. This deferral period is known as the, "accumulation" period. During this time the annuity company has your money invested and your single premium will experience moderate to substantial growth, depending on what risk tolerance you've chosen. Once the accumulation period has ended, the annuity "annuitizes" and your guaranteed, lifetime payout begins.
Depending on how the annuity is structured when it is purchased, the annuity retirement option may not contain the choice of distributing any remaining balance to beneficiaries should the annuitant pass away after the annuity annuitizes and payout begins. While considered a drawback by some, this condition actually guarantees the annuitant a higher payout and can be a good option for those unconcerned by the distribution of assets to their beneficiaries upon death. In some cases an annuity company may end up paying out more in payments than the annuity is worth because the annuitant outlives their initial premium and its growth. This guaranteed payment is the annuitant's hedge against outliving other retirement plans.
Annuities are flexible and can be formatted to suit the needs of each individual. For a decrease in monthly payout, an annuitant can choose death benefit options on the annuity which can guarantee a death benefit payout to the annuitant's beneficiaries at death. Married couples can purchase "Joint and Last Survivor" annuities that allow annuity payouts to the surviving spouse to continue after the death of one spouse. Another option which often lowers an annuitant’s payout amount is a "Period Certain" annuity. With a period certain annuity, and annuity payment is guaranteed for a certain period of time (such as 10 years) after annuitization.
Many factors should be considered before beginning an annuity retirement plan. When using annuities for retirement as part of your retirement financial plan, you should work with your financial planner to determine how much income you will need from the annuity. Should you need to withdraw funds from the annuity during its accumulation phase, you could pay penalties and lower your guaranteed payouts. During the accumulation and annuitization phases, you may need to re-balance the underlying investments in the annuity to provide a better return.
The security offered by owning an annuity can help make retirement planning and retirement manageable, attainable and survivable!