Why Would You Set Up An Annuity?

Shawn Plummer

CEO, The Annuity Expert

Navigating the world of personal finance can feel overwhelming, right? From stock markets to savings accounts, there’s a lot to grasp. But have you ever wondered about annuities? Are they a mystery you’re yet to unravel? Fear not! This guide aims to lift the fog on annuities, showing you why you should set up an annuity.

Understanding Annuities

Annuities are contracts between you and an insurance company. You pay them a lump sum or a series of payments, and in return, they provide you with regular disbursements, either immediately or at some point in the future. Annuities are a popular part of retirement planning, but why would you choose one?

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Securing Steady Income

One of the most compelling reasons to set up an annuity is the guarantee of steady income. This is particularly valuable in retirement when regular employment income has ceased. In addition, annuities offer a safety net, providing reliable payments that can help cover your living expenses.

Let’s consider an example: if you’re retiring at 65, and you’ve set up an annuity that pays you $2,000 monthly, that’s a predictable source of income you can depend on, regardless of market conditions.

Protection against Longevity Risk

Annuities are one of the few financial instruments that help protect against longevity risk, the risk of outliving your savings. In addition, since many annuities offer payments for the rest of your life, they can provide peace of mind and financial security.

For instance, if you’re in excellent health and your family has a history of longevity, an annuity can serve as a financial cushion, ensuring you won’t run out of funds even if you live to a ripe old age.

Why Would You Set Up An Annuity

Tax-Deferred Growth

The money you invest in an annuity grows tax-deferred until you receive payments. This means you won’t owe taxes on your investment earnings until you start withdrawing funds, which can potentially result in significant tax savings.

To put this into perspective, if you invest in a fixed annuity at age 50 to start receiving payments at 65, the returns on your investment from those 15 years are tax-deferred, possibly resulting in a larger nest egg.

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Next Steps

So, why set up an annuity? Annuities provide steady income, protect against longevity risk, and offer tax-deferred growth. These attributes make them an attractive option for individuals seeking financial stability in retirement. However, as with any financial decision, assessing your unique needs and circumstances is essential before leaping. Consulting with a financial advisor can provide further clarity and help ensure you make the best choice for your future. After all, financial decisions aren’t just about numbers; they’re about people—about you.

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Frequently Asked Questions

How do I decide which type of annuity to choose?

Understanding the different types available to choose the right annuity for your needs is essential. Fixed annuities provide reliable returns, while variable annuities offer the possibility of higher returns but come with market risk. Take some time to research the features and benefits of each type before deciding which one is best for you based on your goals and needs.

What happens if I outlive my annuity?

Many annuities offer payments for the rest of your life, so you don’t have to worry about outliving your annuity. However, it’s essential to read the fine print before signing any agreement, as some annuities may only provide payments for a certain period or until the funds run out.

How do I get started setting up an annuity?

Once you’ve researched and determined that an annuity is right for you, contact a financial advisor or insurance provider to discuss the details and get started. When meeting with a financial advisor, ask questions and understand all the associated fees. Finally, ensure you read and understand all the terms and conditions before signing any agreements.

How much money do you need to start an annuity?

The minimum initial investment for an annuity varies but typically ranges from $1,000 to $10,000. Some insurance companies may require more significant amounts. Always check with specific providers for their requirements.

Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed insurance agent and annuity broker with over a decade of first-hand experience. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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