There is no single, one-size-fits-all solution for retirement planning success. While that may sound overwhelming, what it really means is that retirees have a lot of options to choose from when selecting financial and insurance instruments. One of the instruments that can help them design a secure, satisfying retirement is an annuity.
What Is an Annuity?
If you were to take out insurance against living too long, then you’d get an annuity. Like the pensions of yesteryear, an annuity is a contract that can guarantee you a lifetime income even if you outlive your retirement savings.
How Are Annuities Structured?
While an annuity is a single instrument, these contracts offer many opportunities for unique, individualized design. Some of the options you can explore include:
- An immediate annuity that begins paying out distributions within a month
- A deferred annuity, which can begin payouts decades after creation
- A single premium annuity, which occurs when the full amount of the contract is paid at once
- A premium paid in installments
- Guaranteed income options that allow for a fixed payment for life
- Joint and last survivor annuities, which guarantee payments over the lives of two contract holders
- Guaranteed terms that allow for payments over a set number of years
Additional Benefits to Annuities
Annuities don’t just provide income; they can also supplement other planning areas such as:
- Death benefits: A death benefit pays the named beneficiary should the owner pass away before payments begin.
- Charitable giving options: Annuities can be purchased within a charitable remainder trust. In this arrangement the grantor receives payments throughout his or her life and the charity receives the remainder of the property at death.
- Inflation protection: Annuities can be designed to have increasing payments meant to keep up with inflation.
- Long-term care benefits: Hybrid annuities can allow a deferred annuity holder to use funds to pay for long-term care expenses without federal taxation.
It’s a good idea to meet with your insurance agent or financial advisor to discuss how an annuity might fit into your overall financial plan and how it can make retirement planning easier and more secure.