There are a lot of different ways to plan for your future. From IRA’s to stocks and bonds — all of these options are solid investment choices. If you’re looking to secure a way to pay yourself a regular monthly payment, annuities are an excellent choice.
What is an Annuity?
An annuity is a great long-term financial investment that distributes your money to you as recurring payments in the future. These funds can be paid out as a lump sum, or via monthly payments, which is the option most people choose for distribution. Annuities are a savvy investment choice when thinking about estate planning, tax savings, or retirement income. Here’s how they can benefit you.
- Family Estate Planning – An annuity can be set up to pay monthly payments to your designated beneficiary in the case of your death, often with no need for probate.
- Income Tax Savings – Taxes are not required to be paid on your investment earnings in an annuity until the money is withdrawn from the account.
- Retirement Income – Setting up an annuity now means you will have a steady stream of income during your retirement years.
Here’s how it works: Annuity investments have two stages — accumulation and annuitization. During the accumulation stage, the annuity account is funded either via a large deposit or a series of payments. This money is invested according to the type of annuity account purchased. The annuitization stage is when the payments begin which can be either a large one-time payment or via regular monthly payments.
Is an Annuity Right for You?
If you are expecting to have expenses in your retirement years such as a mortgage, an annuity with monthly payments may be the perfect solution. Here are some pros and cons of annuities, so you can see if it works best for your future plans.
Pros of Annuities
- Customize your annuity account to suit your needs and terms.
- Tax deferred investment option once contributions to other tax deferred accounts like IRAs have reached yearly investment limit.
- Regular monthly payments.
- Set a beneficiary for any unpaid money in the annuity account upon your death.
Cons of Annuities
- Set payments may not be enough over time due to inflation.
- Investment option choices are limited.
- Fees and other charges often exceed those of IRA accounts.
- Establishing account can be complicated as there are a variety of different types of annuities including immediate, deferred, variable, fixed, equity-indexed, and more.
Are Annuities Safe Investments?
From an investment standpoint, annuities are a safe way to save money. As with all investments, though, they do have risks. These include market risk and issuer risk. Market risk is when your investments lose value, meaning you have less money in your account for future payments. Issuer risk is when the issuer of the account does not have the money to actually pay your annuity when you ask for it.
Planning for the future with the use of annuities is a savvy investment move. It allows you to customize your financial future and plan for your retirement as well as your family’s security.