What to consider before purchasing
As you get closer to retirement age, you’ll likely be bombarded with ads for annuities. You may wonder: what is an annuity, how does it work, and do I need one? I’ve gotten this question a lot and the answer depends on your situation.
An annuity is a financial product that can provide you a sum of money each year. While annuities can be a great solution for retirement and other forms of financial planning, there are considerations to keep in mind before adding them to your portfolio.
Purchasing an annuity is a major financial decision, especially given the upfront asset allocation involved. However, a financial professional can help you with the process and with making decisions about what’s right for you.
As a financial adviser right here in the Bay Area, it’s my job to offer financial guidance to those in the local community, especially those planning for retirement. Let’s walk through the key characteristics of annuities and three things to consider.
There’s more to an annuity than you might think
A guaranteed stream of income may seem enticing, but it’s important to take time to learn what’s involved. An annuity can be a great addition to your portfolio if you understand how it functions and benefits you financially.
Annuities come in different types. For some, you pay and receive a fixed amount for a set number of years. For others, payments vary depending on the performance of the investments selected by the insured. Talk to your insurance provider or reach out to a financial adviser to discuss whether an annuity is right for your retirement or other financial plan.
Well-planned annuities can guarantee retirement income
The biggest advantage of an annuity is the peace of mind it provides in the guarantee of income during retirement. Selecting the right option at the onset allows you to set up a plan that meets your specific financial needs after your working years.
A common option for those who want a monthly check after retiring is to add a lump sum to an annuity at retirement. This allows the insured retiree to live on a regular income for years.
Backing out of an annuity can have consequences
For some, placing a large sum in an annuity upfront is a great idea for a comfortable retirement. For those who enjoy traveling and extravagant purchases, it might feel like a loss of freedom. It’s important to note that withdrawing money early can result in expensive surrender fees and in certain situations, taxes and penalties may apply.
Before you set up an annuity or other retirement plan, know what’s involved. The key to preparing for a relaxing retirement is staying informed and selecting the right options for your financial situation. An adviser can help. Call me today for professional advice on annuities and retirement planning.
* Securities and advisory services offered through MWA Financial Services, Inc., a wholly owned subsidiary of Modern Woodmen of America. Member: FINRA, SIPC.
All guarantees backed by the claims-paying ability of the issuing insurance company.
