When it comes to retirement planning, one of the most important decisions you will make is what type of annuity to purchase. There are a variety of different annuities available, each with its own set of pros and cons. So, which one is best for people of retirement age? In this guide, we will explore the three most common types of annuities and discuss which one might be right for you.
What Type of Annuity Is Best for People of Retirement Age?
- Immediate Annuities
- Fixed Annuities
- Fixed Index Annuities
- Long-Term Care Annuities
- Qualified Longevity Annuity Contract (QLAC)
- Medicaid Annuities
Immediate Annuities
An immediate annuity is an insurance contract in which you exchange a lump sum of money with an insurance company. You will then receive a series of guaranteed payments for the set amount of time.
This type of annuity is what the lottery uses for its payout option.
Fixed Indexed Annuities
A fixed indexed annuity is a type of fixed annuity that earns interest based on changes in a market index. These changes measure how the market or part of the market performs. The interest rate is guaranteed never to be less than zero, even if the market goes down. Your tax-sheltered retirement accounts get to earn market gains with no downside potential and tax deferral.
Fixed Annuities
A fixed annuity is an insurance policy that gives you a set interest rate for a set amount of time. This is similar to a Certificate of Deposit (CD). There are two types of fixed annuities: traditional fixed and Multi-Year Guarantee Annuity (MYGA).
Long-Term Care Annuities
A long-term care annuity is a type of long-term care insurance that can help you pay for long-term care services. This type of insurance is tax-deferred, which means you don’t have to pay taxes on the money you receive from it. The annuity also provides an enhanced tax-free benefit, which means you won’t have to pay taxes on the money you use to pay for qualified long-term care services and facilities.
Qualified Longevity Annuity Contract (QLAC)
A QLAC is a type of deferred income annuity that is specifically funded by a qualified retirement savings plan. This pension-like contract allows you to defer required minimum distributions.
The Medicaid Annuity
A Medicaid Compliant Annuity is a special type of immediate annuity that helps maintain the lifestyle of a healthy elderly spouse while their unhealthy spouse receives Medicaid benefits.
Retirement Annuities At A Glance
| Variable Annuity | Fixed Index Annuity | Fixed Annuity | Immediate Annuity | Deferred Income Annuity | |
|---|---|---|---|---|---|
| Principal Protection | No | Yes | Yes | Yes | Yes |
| Access To Principal | Yes | Yes | Yes | No | No |
| Control Over Money | Yes | Yes | Yes | No | No |
| Tax-Deferred Growth | Yes | Yes | Yes | No | No |
| Guaranteed Growth | No | Yes | Yes | No | No |
| Guaranteed Income | Yes | Yes | Yes | Yes | Yes |
| Inflation Protection | Yes | Yes | No | Yes | Yes |
| Death Benefit | Yes | Yes | Yes | Yes/No | Yes/No |
| Long-Term Care Help | Yes | Yes | Yes | No | No |
Conclusion
If you are in retirement or nearing retirement and want to protect your income, annuities may be a good option for you. Request a quote today to see how much an annuity can help supplement your income and reach your financial goals. Annuities can provide many benefits including guaranteed payments, the potential to earn market gains with no downside risk, tax deferral, and more. With so many options available, it’s important to work with an experienced agent who can help determine which annuity is best for you.
Frequently Asked Questions
What is the best age to buy an annuity?
The optimum age to acquire an insurance annuity is between the ages of 40 and 85, although purchasing a variable annuity between the ages of 40 and 55 is preferable because there is a possibility of losing money and a pre-retiree requires time to compensate for it before retirement.