Why would fixed annuities be considered for retirement plans?
We buy lots of types of insurance over the course of our lives. We buy insurance policies for houses, autos, etc. Well an annuity is a type of “insurance” against outliving our assets. Since Americans are enjoying longer life spans now, this has become an important consideration.
Fixed annuities are also considered safe money. Stocks or mutual funds can lose money. Of course, we all understand this from watching recent financial news. Certificates of Deposit and savings accounts are also safe, but they have low interest rates.
Fixed annuities can be a mmiddle road. They are safe money, but promise higher returns than other bank products. Fixed Annuities for Retiremet Planning
If you are looking at fixed annuities, keep in mind that there are two basic types. These are deferred and immediate. The type of plan you will choose depends upon your own situation.
Deferred – This means that you will contribute to the plan now, or over a period of time. You do not expect to actually collect an income until some point in the future as specified in the terms in your own contract.
You may make a lump sum payment, make contributions over a period of years, or make some combination of payments in order to fund your account.
Why Choose Deferred?
You would do this is you are planning for a retirement that is planned to be some time in the future. People also can use these types of accounts for other savings needs like planning for college costs.
Immediate Annuities – These types of plans accept a lump sum cash payments. These start making payments the next month. Some people get lump sum paymets from their group retirement plan, or they have a lump sum of money they have saved through their working years. This cash funds annuities, and the annuities provide income.
How does this work?
You can chose different payout lengths and amounts with a deferred or immediate annuity. Some common lengths of time may be 10 years, lifetime, or joint survivorship (pays until the death of the second spouse). Of course, this payout length will affect the payout amount.
Payout amounts will be affected by the amount of money in the account, the length of time that is guaranteed in the contract, and the return on the money.
Payout Rates
The return rates may be a fixed amount. You could purchase a plan with a guaranteed 6 percent return.
Another type of popular plan is called an indexed annuity. The rates will be tied to a large index like the Standard and Poors 500 or the Dow Jones. They return rate will be somewhat less than the actual market return in years when the index goes up. When the market goes down, their should be a guaranteed return ratee so the account does not lose money. A common guaranteed return would be 2% – 3%.
So you can see how these index annuities work. While they may not pay quite as well as the market during good years, they do not risk losing mmoney during bad years.
Are Retirement Annuities Right For You?
No one answer will apply to everybody who wants to plan for retirement. But many people enjoy the guarantee of income. You should consider this choice, do some research, and find the best answer for your future.
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