Many experts believe annuities are a key aspect of retirement planning. Why? Annuities are consistent and predictable and although there are reasons not to buy an annuity, there are many good reasons to consider having an annuity in a financial portfolio.
- Safety and a guaranteed rate of return: Investors seeking a safe, predictable, and reliable cash flow should strongly consider fixed annuities. In addition to those features, fixed annuities offer guaranteed minimum rates of return and contractually guaranteed income riders to help retirees achieve their cash flow objectives.
- Tax deferred earnings are not taxed until withdrawn: Fixed annuities earnings are not taxed until the money is withdrawn. For example, let’s assume that John invests $100,000 in a fixed annuity that earns 3% per year. If John doesn’t withdraw anything from his annuity, he does not pay tax on the interest. Taxes will not be paid until John makes a withdrawal or if he passes away, in the case of death, John’s beneficiaries would pay tax on the accrued interest.
- Liquidity and easy to access funds: Fixed annuities come in all shapes and sizes. Many annuities offer clients an opportunity to withdraw 10% from their annuity without a penalty, others offer a 20% free withdraw if you don’t take a withdraw in the first to years, and some even offer a full return of premium without penalties (some companies will charge a fee to provide retirees more liquidity).
- Simple wealth transfer: Annuities provide security for your loved ones after your death. Annuities pass onto a surviving spouse, children, and any other beneficiary without dealing with probate. In most cases this reduces legal and other costs/delays typically associated with probate.
- Force Discipline: Many retirees get lost trying to chase stock market returns and end up blowing up their retirement savings. Allocating a portion of your retirement savings to annuities eliminates the risk of losing your retirement savings based on poor etf, stock, or mutual fund strategies. Since most annuities require you to sign up for 5, 7, or 10+ years, they limit the amount you can withdraw each year without a penalty. Limiting your withdrawals to 7 or 10% per year helps retirees avoid making quick financial decisions that could otherwise ruin their retirement plans.
An annuity can be a great addition to a retiree investment portfolio. As we mentioned above annuities provide investors: safety, liquidity, tax deferral, wealth transfer, and discipline. Annuities put the investor in charge of their retirement by offering protection from market volatility (ups and downs) and contractual guarantees.
The success of a financial portfolio depends on many factors; to understand the best direction for your investment plans, contact The Investment Professor .
For more information about your investment options contact:
Jason Soloman, The Investment Professor, Tactical Investment Advisors LLC
Phone: (980) 233-9770
Address: 19825-B #149, N Cove Rd Cornelius, NC 28031
The information in this blog post is not intended as tax, financial, insurance or legal advice. Please consult a licensed professional for specific information regarding each individual situation. This post was developed and produced on a topic that may be of interest to the general public. The opinions expressed, and the material provided are for general information only and should not in any way be considered solicitation.
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