What are the benefits of annuities? When it comes to retirement planning, there are a lot of options to choose from. However, one option that is often overlooked is buying an annuity. Annuities can be a great way to secure your financial future, but many people don’t understand them. This guide will discuss the top reasons to buy an annuity and how they can benefit you!
9 Reasons People Buy Annuities For Retirement.
- Tax-Deferred Growth
- A Guaranteed Income For Life
- Never Outliving Your Retirement Savings
- Keep Up With Inflation
- Protection From Creditors and Bankruptcy
- Protection From Stock Market Volatility
- Avoids Probate
- Long-Term Care Insurance
- CD Rates Alternative
- Helps With Medicaid
Money Can Grow Faster
When you have many years until retirement—and the potential to live many years in retirement—you want to give your money a chance to grow. Because an annuity is a tax-deferred investment, you allow your money to grow faster. You don’t pay taxes on any interest you earn until you withdraw it. This allows all of your interest or investment earnings to compound. It’s important to understand that you get no additional tax advantage when you buy an annuity in an IRA or other tax-deferred account or plan. This is because the earnings and income in the account are already tax-deferred. In these cases, it would be best to consider only an annuity for its features and benefits other than tax deferral.
Contribute As Much Money As You Want
Nonqualified, tax-deferred annuities have no IRS-mandated contribution limits. However, other tax-deferred retirement savings accounts, such as 401(k) plans and IRAs, have limits. This makes an annuity particularly helpful if you’ve contributed the maximum to a 401(k) or IRA and want to save more money in a tax-deferred vehicle. Here’s another potential advantage: You can allow your annuity to grow as long as you like.
Unlike a traditional IRA or 401(k), an annuity isn’t subject to required minimum distributions (RMDs) when you turn age 73 (unless the annuity is held inside another tax-deferred retirement account subject to RMDs).
Protection From A Stock Market Crash
Depending on your type of annuity, you can protect your principal and earnings from loss during market downtowns. A fixed annuity, for example, offers a fixed rate of interest over the life of the contract and protects both your principal and interest from loss for the entire term of
the guarantee period you choose.
A fixed index annuity tracks a market index and provides growth opportunities in line with the index’s performance. In addition, any gains are “locked-in” annually, so if the index underperforms in a given year, your previous earnings are protected, guaranteeing that your annuity won’t lose value in a market downturn.
Guaranteed Income For Life In Retirement
Social Security provides guaranteed income, but it may not be enough to cover all of your essential expenses. Pensions also provide guaranteed income, but few employers offer them.
With most annuities, you’ll have choices that allow you to increase your guaranteed income. For example, when you’re ready to withdraw from your annuity, you could annuitize your contract into payments for life or a specified period rather than a lump sum or partial withdrawal. You also may be able to purchase a guaranteed lifetime income rider for an additional fee when you buy the annuity. These options can help guarantee your long-term financial security.
Providing An Inheritance For Beneficiaries
Most annuities have features that allow you to pass the value of your contract directly to your beneficiaries, usually without the proceeds going through probate. You may also be able to designate that a beneficiary receives guaranteed income payments for a certain period or a lump sum.
Generally, your designated beneficiaries will receive the greater of two values:
- The account value when you die or
- The amount you contributed to the annuity (adjusted for prior withdrawals).
Another feature of some annuities is a guaranteed death benefit, which ensures that your beneficiaries receive the total account value (including any interest you’ve earned) should you die before you begin receiving annuity income payments.
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 |
Next Steps
If you’re looking for a way to protect your money and ensure you have a guaranteed income in retirement, an annuity may be the right choice. Request a quote today to see how much money you could contribute each month and determine if you’re protected from stock market crashes. You could also provide an inheritance for your beneficiaries that they can count on no matter what happens in the future. Contact us today to learn more about how annuities work and find the best plan for your needs.
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