Annuities: Insurance for Retirement

August 19, 2020 12:36 newlambertagency

Do you have a retirement plan? If not, then maybe you should start planning. And if you’ve wondered about annuities, then you should continue reading and put an end to your queries.

You’ve probably heard about annuities before—but have you ever considered adding them to your retirement strategy? They remain often ignored and frequently neglected among investors, but Annuities may be the best retirement product that hardly anyone buys.

What are Annuities?

Simply put, an annuity is a contract between you and an insurance company. In return for the money you pay to buy the annuity (which is called a premium), the insurance company will give you a series of payments that are guaranteed to last for a time you select in advance. Thus it could be said that they’re retirement insurance.

An annuity could pay you for your entire life – even if you live to more than 100 years – for your spouse’s entire life, or for a set time that you select, depending upon the type of annuity. And what’s even more appealing is that you can withdraw funds from some types of annuities.

To know more about them, let’s look at the annuity types.

Types of Annuities

Immediate Annuities allow you to turn a lump sum of money into a stream of guaranteed payments that can last for your lifetime, or a set time, depending on your preferences.

Fixed Annuities guarantee your premium payment and guarantee a fixed annual rate of return for set periods until you’re ready to start getting payments.

Variable Annuities are long-term financial products designed for retirement planning that allows you to invest in the market. They provide you with growth potential when the market is up, but can also mean you can lose money when the market drops.

Deferred income annuities allow you to take money that you have today and turn it into a guaranteed stream of lifetime payments in the future.

Now, let’s compare annuities with life insurance or should we say, annuities vs. life insurance.

Annuities vs. Life Insurance

Annuities are generally offered by Life insurance companies and investment companies, Life insurance deals with mortality risk i.e. the risk of dying prematurely while Annuities, on the other hand, deal with longevity risk, or the risk of outliving one’s assets. If the annuity holders survive to outlive their initial investment, it makes Annuities a risk to the annuity issuer. That is why there’s concern over Annuity issuers hedging longevity risk by selling annuities to customers with a higher risk of premature death.

Even though annuities are known to be complex, they can be an extremely beneficial part of your retirement plan.