Learn how annuities work, explore deferred vs. income annuities, retirement fund rollovers, and secure lifelong payouts. Ideal for retirement planning strategies.
While there are different types of annuities, itâs really a simple concept. You invest a sum of money with a reliable insurance company. Set a date for when you want payments to start. And then you receive regular payouts for the life of the annuity.
Main Types of AnnuitiesWhile the types of annuities generally follow the same process, some annuities work differently than others. The two main types of annuities are deferred and income annuities. A deferred annuity is an annuity that you fund, but donât start receiving payments until a later date. Most deferred annuities allow you to defer as little as one year or as many as 50 years.
Benefits of Deferred Annuities
Annuities can be structured differently, so talk to a professional to get a full understanding of what happens with your chosen type of annuity when you die. Make sure to have this conversation with your agent/producer, because some annuities do end upon your death.
Income annuities differ from deferred annuities because the payout is immediate. Income annuities are typically purchased in a lump sum. This type of annuity usually pays out monthly for the remainder of your life. Some income annuities have joint options. With a joint-life annuity, your spouse will continue receiving payments for the rest of his or her life after your death.
Because 401(k) balances can be rolled into income annuities with no tax penalty, it is often an appropriate strategy for someone nearing retirement. By rolling some of your retirement funds into an income annuity, you can receive monthly payments for the rest of your life, helping to ensure your retirement stays funded. Be mindful when choosing how much retirement money to invest into an annuity â once you fund an annuity, you can only receive the scheduled payments and cannot withdraw funds for emergencies without a penalty.
Risks of AnnuitiesWhile circumstances may deem annuities a good fit for you, there are certain risks you should make sure you understand.
Which Annuity is Right for You?Deciding which annuity is right for you can be determined by talking to a professional or by weighing some options yourself. For example, if you want monthly payments to continue even after you retire from your job, an income annuity might be an appropriate strategy to help secure your financial future. But if you are confident in your savings and donât want guaranteed monthly payments until your 80th birthday, maybe a deferred annuity would be best.
Annuities are considered to be a safer long-term investment that can help ensure you donât outlive your retirement funds by providing dependable income over time. This makes annuities a useful strategy for a wide variety of people with different financial circumstances.
If youâre looking to help secure income in retirement or planning to retire early, annuities may be an appropriate financial strategy. Talk to an agent/producer to see if an annuity is the right fit for your retirement strategy or financial needs.
Consult with a professional tax and/or legal advisor before taking any action that may have tax or legal consequences.
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