June is Annuity Awareness Month! Successful retirement planning requires you to explore all possible sources of income in your retired years as well as to create multiple streams of income for security. Annuities are just one of several income streams that you could rely on, but many individuals do not consider them at all. There are a wide range of annuities that you could choose to invest in, and this means that there may be an annuity product that is right for your investment goals and objectives. With a closer look at what annuities offer, you may see that there is a place in your financial plan for this product.
Fixed and Variable Rate Annuities Are Available
One thing that keeps many people away from investing in annuities for retirement planning is the false belief that all annuities have a fixed rate. Fixed rates sound reliable and secure to some individuals, but they can dissuade those who are concerned about inflation and cost of living adjustments from purchasing them. The good news is that there are exceptional variable rate products available for you to choose from as well, and this means that there likely is a product that you can feel comfortable with.
Product Fees Are Typically Very Low
Some people believe that annuities have very high fees that will unnecessarily eat into your nest egg. The reality is that many annuity products have very low fees in comparison to the fees you will pay with other products. There are some annuities with higher fees. However, these products with higher fees typically have special features that make them very attractive to retirees. For example, you may be a one percent higher fee when you purchase some annuities that have a lifetime guarantee on benefits than you would pay for other annuities. The ability to get a guaranteed stream of income for the rest of your life may be worth paying a one percent fee for some people.
Annuities Are Not Just for Seniors
You may think that these financial products are only designed for senior citizens who are retired or almost retired, but this is not the case. Anyone can purchase annuities at any age or stage of life. Some people, for example, will use death benefits from a life insurance policy to purchase an annuity. When used in this way, the financial product can replace a stream of income for a family that was lost when the loved one passed away. These products can also be used by those who retire early and who are too young to collect Social Security checks or 401(k) distributions.
Annuities Provide a Stream of Income That You Can Count on for a Lifetime
Some people are afraid to purchase these financial products because they fear that their nest egg will be consumed by a product that will not last a lifetime. They believe that they can better manage their own personal funds and outpace the performance of these products, but this creates a great deal of stress in the last few decades of their lives. The reality is that some annuities may be purchased with a ten or 20-year term, and it is possible for you to outlive the product. However, there are also products with a guaranteed lifetime payout. This means that you could receive regular income payments from your annuities, and this can help those who are stressed about outliving their funds breathe a sigh of relief and enjoy their retired years with minimal financial concerns.
Your Beneficiaries Will Receive Unused Assets When You Pass Away
It is important that you read the fine print on annuities before you buy them. The wording regarding beneficiaries can vary from product to product. In most cases, annuities that do not have a lifetime guarantee clause do have wording that provides your beneficiaries with all remaining assets after you pass away. This type of clause is not common on lifetime guarantee products. One way that couples can overcome this challenge is to purchase two separate annuities that each provide the income that they need to live off of individually. Some annuities are designed for couples and can pass on to a surviving spouse.
Annuities are not right for every situation, but they may have a place in your retirement planning efforts. Now that you know more about the real benefits that these products can provide to you, you might by interested in asking more questions. We are here to provide those answers to you.
Eric and Jennifer Lahaie
JEHM Wealth & Retirement
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