One of the scariest things about retirement is the volatility of the . What happens if the crashes while you are drawing down your retirement portfolio? Even if you build up a good , you might still end up running out of during retirement, especially when it comes to your monthly .
The goal for many retirees, then, becomes securing a steadystream that can be relied on, no matter what.
While it can be tempting to go with, this might not be your best . A better choice might actually be an .
How Does an Annuity Work?
An annuity is a contract, usually offered through an insurance company, that agrees to provide you with a payout (i.e. a stream of income). You might agree to a specific amount of , paid to you regularly, for a set amount of years.
It's also possible to purchase an annuity that pays a regular amount to you indefinitely. Realize that if you opt for an annuity without a definite term, you are likely to see a smaller income stream. However, a set payout term, such as 10 or 20 years, might not be long enough to ensure that you receive enough income to outlive your money.
What's Wrong With Annuities?
In the past, annuities have gotten a bad reputation due to their high fees, low yields and onerous taxes and survivorship. And many annuity products deserve the bad names they have been given. You do need to be very careful when choosing an annuity.when it comes to
However, if done right, an annuity can be a way to secure some portion of your retirement.
Immediate Annuities vs Deferred Annuities
One of the popular choices in annuities is the immediate annuity. With this arrangement, you take some of the money in your retirement account and use it to purchase an annuity that begins payouts immediately. Your lump-sumpurchases you that you can count on.
This is in contrast to a deferred annuity, in which you make payments to the annuity over time and receive benefits at a later date.
When it comes to retirement planning, it is usually better to choose the immediate annuity. After all, it's more about making sure you have a reliable source of retirement income than it is about building .
The low yields associated with a deferred annuity aren't likely to help you build your investments to build a retirement account that is large enough to purchase an immediate annuity later.; instead use high-yielding
Investing in Annuities to Diversify
As with all nest egg and use it to purchase an annuity -- even if it is an immediate annuity. You'll still want some of your retirement portfolio money in a “bucket” that still has the potential to provide inflation-beating returns., make sure that you have sufficient diversity in your portfolio. Don't take your entire
that your annuity is only as good as the company backing it; if the company folds, you could lose out.
If appropriate, take a portion of your retirement account and use the money to buy an immediate annuity. It doesn't need to provide for all of your income needs; often, just having half or three-quarters of your required retirement income provided for can make a big difference in how you feel about your financial security.
The income from the annuity can provide you with a certain amount of stability, and help you get through the difficult times in the markets.
Are Annuities Good for Retirement?
Don't assume that all annuities are bad. There are some immediate annuity products available with reasonable, straightforward fees and survivor benefits.
Talk to a financial professional (who isn't earning cash flow. Explore companies with solid , in order to reduce the chance of losing out through a failed company.on your choice) about your situation. Discuss whether an immediate annuity could be incorporated into your retirement financial plan to provide a degree of stability with your
Also, check your state's guaranty program. In some cases, a portion of your annuity money might be insured through the state.
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