Things To Keep in Mind When Considering an Annuity

The retirement age for many U.S. workers is 66. Often, the key question people pose to themselves or other retirees is, “What did you do with all the money gained from your golden years?” About 15 percent of workers don’t have any form of retirement savings. For some people, retirement plunges them into one poor financial situation after the other.

But there are several financial products to leverage for your retirement goals. Annuities, for instance, may come off as a good choice to several retirees. But there may be varying effects for your short- and long-term goals, especially in recent years, when factors like COVID-19 keep influencing individual stocks and the global markets. Here are some essential things to note when considering an annuity.

Know where to get advice.

Annuities are insurance products with contract features that allow holders to receive regular income payments over a set period of time. An annuity contract can be a great choice for retirees. Just like any investing service, annuities may require the services of seasoned financial professionals or a team of advisors. Today, beginners can either confer with traditional advisor services or modern top robo advisors.

Robo-advisor digital platform services leverage computer algorithms and artificial intelligence technologies to tailor investment products to the particular needs of inexperienced investors. Robo-advisory service has become an attractive option for many young investors because of the unlimited access to tailored investment products. The robo-advisor market is expected to have grown significantly since last year. Experts expect further market growth of up to 40 percent in the next five years.

Some of the largest robo-advisors leading the market include Wealthfront, Betterment, and more. When reviewing a list of service providers for a top choice, annuity owners can additionally confer with legal experts before the final decision.

Know the types of annuities.

Annuities come in several types. Generally, annuity products are insurance company contracts entered into by individuals seeking to enjoy a regular income stream for a set period of time. But an annuity contract differs from a lifetime settlement or insurance policy. Annuity purchases ensure an individual does not outlive their investable assets. Lifetime settlements involve the sale of life policies to a third party for a lump sum payment much bigger than the policy’s death benefit. While the general purpose of an annuity contract is to save comfortably for the rest of your life, knowing the differences between the annuity guarantees of the different types can be helpful. Here are a few types to consider.

Immediate annuity: An immediate fixed annuity contract is an exchange between a retiree and an insurer. The retiree offers an upfront lump sum payment in the form of a premium to the insurer. In return, the retiree receives monthly payments. The retiree can opt to receive payment on a term basis or for the rest of their life. Your portfolio manager can integrate this type of annuity into your investment portfolio seamlessly. There are two types of immediate income annuity options available for retirees, including single premium immediate annuity and deferred annuity.

Index annuity: An index annuity makes payment on an interest rate accrue on a specific market index like S&P 500. Index annuities can afford any annuity owner to enjoy more capital gains when the financial markets are in good shape.

Variable annuity: Variable annuities can be less straightforward compared to fixed income annuities. They come with extra contract features at an additional fee. Some of these features include guaranteed lifetime withdrawals and death benefits. Variable annuities allow first-time investors to opt for underlying subaccounts. With this option, a novice investor may lose much money, given the market exposure.

Consider other alternatives.

Often, people circle back to the hands of their pension plan providers when opting for annuities, but reviewing several other options can churn higher retirement income benefits. If you must stay with your retirement account manager, it pays to review the annuity rate of return, customer service, and other factors to guarantee optimum comfort.