Annuities May Offer More Than Secure Income
There is more to annuities then simply having the safety net of a guaranteed “payday.” As an annuitant, your income stream may be higher than you think. But do your homework.
You purchase an annuity from a life insurance company, paying premiums now for what will be a guaranteed income stream in the future.
When you buy a fixed annuity, you will know exactly how much you can expect to receive from the insurance company each “payday,” as the income stream on a fixed annuity is also fixed.
Additionally, by joining a pool of other annuity buyers, you may have access to a higher income stream than you would be able to access on your own.
Why? Because the annuitants in your pool who die younger essentially subsidize more attractive income streams for those annuitants who live longer.
If you like the idea of an annuity, be sure to do some comparison shopping. An annuity’s appeal depends in large part on the size of regular income payments promised, and different annuities are likely to offer different payments.
But this isn’t the only factor you should consider when choosing an annuity: You’ll want to compare the fees associated with the different annuities you’re considering, as well as options such as inflation adjustment.
Finally, be sure to compare the annuity payment to what you might be able to earn by investing the same money in something else. You’ll also want to look at the risk of the annuity as compared to other investments, because the relative safety that an annuity offers may encourage you to accept a lower return.
As simple as they sound, annuities can be complicated, so it’s always wise to consult an advisor before buying one.
He or she can help you navigate the annuity market and make the choice that’s right for your individual financial goals and risk tolerance.
Consider Tailoring an Annuity to Meet All Your Needs
If you like the idea of an annuity but are concerned about putting out a large sum and possibly dying before you receive significant income, you may want to investigate tailoring an annuity to meet your needs.
An annuity is a contract with a life insurance company. You pay a premium now in exchange for a guaranteed stream of income later. That stream of income can last for a specific term (such as 10 or 20 years) or for the rest of your life. With a fixed annuity, that stream is also fixed, so you always know how much money you’ll receive.
The life insurance company that receives your annuity premiums will usually retain the premiums if you die before the annuity term ends. It is this point that can be a source of anxiety for many annuitants.
Fortunately, there is often some flexibility in how an annuity can be structured. For example, you may be able to purchase an annuity that looks after your loved ones after you die by making payments to your spouse or children.
Tailoring an annuity can eliminate a source of stress; however, purchasing an annuity can be complicated, and buying one is not a do-it-yourself task.
It’s a good idea to consult your advisor and work with him or her to ensure you understand what kind of annuity you’re purchasing, what the terms are, and what fees are involved, as all these are important factors to consider.
You may find a tailored annuity meets your all needs.