Considering Annuities? Ask Your Advisor
When finances get tight, as they do in economies and markets like these, you may wonder if you should move a portion of your retirement savings to annuities. Depending on your individual financial circumstances, it may make sense to talk to your advisor about the topic of an annuity.
An annuity is a contract with an insurance company. In exchange for making a payment to the company now (either as a lump sum or in installments), you are guaranteed a stream of income at some point in the future.
Annuities offer many benefits. For example, if you pay a lump sum to the insurance company for your annuity, not only will you be guaranteed monthly checks for life but you will start receiving those checks immediately. Best of all, your checks will arrive regardless of how markets perform.
That’s not to say annuities don’t have drawbacks. For example, your advisor may tell you once you’ve made a lump-sum payment to the insurance company, you may not be able to get it back.
One compelling option is to leave part of your retirement savings in traditional retirement-savings vehicles for growth potential and invest another part in an immediate income annuity for guaranteed income. That way you obtain the benefits of an annuity but avoid the drawback discussed above.
Whether you want to convert a portion of your retirement savings to an annuity depends on the type of retirement savings you have.
Social Security and pensions already provide assured income for life, so if those are your primary retirement-savings vehicles, you may not need an annuity.
On the other hand, Individual Retirement Accounts and 401(k) plans may fluctuate in value with the market, so if the bulk of your retirement savings is in those vehicles, you may want to consider asking your advisor about an annuity.
Your advisor who specializes in the topic of an annuity can help you determine which strategy is right for you.