How Much Money Should You Put Into Annuities For Your Retirement?
Virtually all would-be retirees ask themselves the same question at some point: How much of my retirement savings can I afford to spend each year?
The answer depends on your income stream, but determining that isn’t always easy. Since it isn’t simple to figure out what to do with your 401(k) plan after retirement, for example, many financial products and services have been developed to allow you to convert your retirement savings into a consistent stream of lifelong income. One example is fixed annuities.
For example, you might work with a financial advisor to determine how to invest your retirement savings to maximize the odds of making your nest egg last. This would involve an analysis of your risk tolerance and an estimate of how much you can afford to spend annually.
You would then decide which retirement products could best help you achieve these goals. For example, you might try to cover essential expenses like housing and food with predictable income sources, such as Social Security, pension benefits and fixed annuities. The rest you can cover with investments in other securities, such as mutual funds.
An annuity is a contract with an insurance company. You make payments in one lump sum or for a certain amount of time. In return, the insurance company provides you with payments at regular intervals either immediately or at some point down the road.
Like all investments, annuities have pros and cons and may work better for some investors than others. Your financial advisor and insurance company broker can help you determine if annuities are suitable for your individual financial circumstances and retirement savings.