Annuities – A Popular Tool in Retirement Planning

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As a part of your retirement strategy you have probably heard of, and possibly thought of, including an annuity into your retirement planning.

First, what is an annuity? Similar to the word “annual” it is related to the idea of yearly, or ongoing. An annuity is a form of insurance product that pays out a steady stream of predictable income, usually starting at retirement age but it is a product that can be structured to pay out at a customized time.

The simple workings are that in an annuity you make an investment (payments over time or a lump sum investment). The annuity then makes payments out to you, usually starting at some future date. The payments can be monthly, quarterly, yearly or even in a lump sum.

Just like any insurance policy or similar investment vehicle, the payment amount is determined by how much you have paid in and can also be affected by how long you have been paying in.

There are many options in setting up an annuity and we understand those options. Let us give you our knowledge and guide you successfully through this process.

Variable or Fixed Annuities–Which is a better choice?

There are many choices, and many companies, to choose from when it comes to annuities and we are here to help you make the informed choice.

Aside from the important choice of which company to select, there are several other key options when it comes to setting up your annuity:

  • Life Time Payments–You can elect to have annuity payments continue for the rest of your life, and in some cases set up survivor payments as well. These payments are usually lower than a set number but they have the advantage of continuing for the whole of your life.
  • Set Number of Payments–This is a better option when higher payments are needed, particularly when opting to take payments at a later stage in life or when only a fixed period of coverage is anticipated
  • Fixed Annuity–This is a guaranteed payout, the amount remains equal for the full length of the term.
    This is a better option when a stable and predictable income stream is called for.
  • Variable Annuity–These payments will vary based upon the strength, or weakness, of the underlying investment portfolio. Can be of an advantage when the portfolio performs well and payments are increased. Also is of value when the annuity is not the core of the retirement income stream but provides extra “comfort cash.”

There are two other choices in annuities as well:

  1. Deferred–A deferred annuity lets your money accumulate and then ultimately provides you with a payout. Many people use deferred annuities as a long-term retirement plan. With a deferred annuity, you can make payments to it for a set period of time and then make withdrawals starting on the date defined by your policy.
  2. Immediate–An immediate annuity lets you receive payments not long after you make your first “investment” into it. This is a good option for those who are of or close to retirement age and have found themselves financially in need of more living expenses. Many people approach retirement and realize that their 401Ks and social security will not be enough to fund their lifestyles. Selling assets, such as downsizing a home, can provide a lump sum that can be placed into an annuity.

Purchasing annuities can get confusing. Please contact Lucas Insurance Services today for a free consultation and we will be happy to answer any questions and concerns you have and provide you the information on annuities and retirement planning that you need!