What Are Annuities? Everything You Need To Know Before You Retire

Aug 13, 2020

annuities

Are you thinking of retirement and want to make sure you’re set with annuities? Or, not quite sure what exactly annuities are and why they’re important?

It’s best to be prepared for retirement, and know that you’ll have the money you can count on. Did you know that the average American only has $96,000 saved? Whether that’s you or not, read on to find out why annuities are so important, and how they can help you in your retirement.

What Is an Annuity?

An annuity is an insurance product that will pay you out income. It’s often used as part of your plan for retirement. It’s also a great option for investors who are looking to have a steady stream of income.

How Does an Annuity Work?

When you’re considering annuity long term care insurance in Woodbury MN, it’s important to understand how they work. First, you’ll make an investment in your annuity. In the future, it’ll make payments to you whether on multiple dates or one single date.

The choices for annuity payments are to receive the money in a lump sum, annually, quarterly, or monthly. The amount of your payment will depend on your payment period, and other factors as well.

Understanding the Importance of an Annuity

Annuities are there to ensure you’ll receive steady cash later on. This helps you avoid fears of your finances lasting during your retirement years.

Are There Different Kinds of Annuities?

There are a variety of choices whether you’re looking for life insurance or annuity long term care insurance. Whether you’re looking for a fixed or variable annuity is up to you.

In a fixed-indexed annuity, you’ll receive a minimum income benefit that’s guaranteed. You’ll also be eligible for gains with this form of annuities.

If you choose a variable annuity, your retirement payments can vary depending on the investment’s performance. This gives you the opportunity to choose from multiple investments.

For receiving payment at a later date, choose a deferred annuity. Payments normally go out about a year or more later.

To receive regular income payments for the rest of your life, choose an immediate annuity. This annuity option allows you to choose either a certain period of time or for the rest of your life.

What Are the Benefits of Annuities?

While annuities vary depending on which type you choose, there are many benefits¬†with an annuity. The first benefit is, of course, that you’re investing in an annuity.

You have the freedom to choose whether you receive payments for a certain amount of years, or for the rest of your life. Another benefit is that there are options with annuities.

You can choose whether you’d like a variable or fixed annuity. You can take a look at how well your annuity is doing to see how much the payout will be. There’s control over your income payments, such as deciding the length of your payment.

They Will Add to Your Financial Security

When you retire, you want to know that you’ll have guaranteed pay. Annuities have been shown to be reliable in retirement since they reduce portfolio failure, and increase legacies.

Do you worry that an annuity will reduce your legacy? Annuities can increase your legacy and estate. Research shows that when you add an annuity to help your spending in retirement, you’ll be more likely to meet lifetime spending needs.

You might also only need a smaller portion of assets as well. Liquidity is increased when you add an annuity.

Research has also shown that when you add an annuity to your retirement income portfolio, this causes a decline in the failure rate.

Fixed vs Variable Annuities

Variable annuities are a great option when you’re looking for the potential of a higher cash flow. Keep in mind that if the investments don’t do well, then you’ll receive smaller payments.

Fixed annuities are a way to ensure you’ll receive regular payments you can count on. Variable annuities are more of a risk than a fixed annuity but offer the chance to really take advantage of the benefits of a strong investment.

If you choose to go with a variable annuity then you can choose annuity contracts. These annuity contracts are an added expense. This is a way to have protection, and make sure that there will be a guaranteed minimum withdrawal benefit.

Life Insurance vs Annuities

Are you doing a comparison of life insurance vs annuities long term care insurance? If you choose life insurance, you’ll pay a premium each year to the insurance company. On your death, the insurance companies will pay out a lump sum to your beneficiaries.

Life insurance is there to help with funeral expenses, and help the beneficiaries with any bills. Annuities take a look at the longevity risk. This is when someone outlives their assets.

Annuities also offer a death benefit to a beneficiary. Both life insurance and annuities have savings options. Life insurance does collect money slower than annuities as well. If you’re looking to build savings, then annuities are a better option.

You also have the option of tax-free growth with both choices. As with other retirement options, if you take out the money in an annuity before you reach a certain age, then you’ll receive a penalty, and pay taxes. For life insurance, you’ll pay taxes on just the interest normally.

Exploring Annuities and Determining If They’re Right for Your Retirement

Now that you’ve learned about annuities, you should have a better idea of whether it’s right for your retirement portfolio. It’s important to talk to a financial advisor to decide whether life insurance or annuities long term care insurance is right for you.

Are you ready to receive help with financial advice in the Woodbury area to set you up for retirement? Or maybe improve your retirement? Contact us today and we’ll come up with a plan specific to your needs.

Investment advisory services offered through Pine Grove Financial Group, an SEC Registered Investment Advisor.

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Pine Grove Financial Group

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