Retirement Help From Annuities

By Author: Ryan O'Donnell
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Growing numbers of Americans now see that they may not get enough money (maybe none at all) from Social Security to pay for their retirement. It is sad in a way that an economic crisis had to remind many otherwise educated people that they should take some responsibility for their future by saving, investing and living within a budget. With the banking and credit problems that began in 2007 getting worse over the subsequent years, there has been renewed interest in funding the "golden years" in Florida or Arizona, two popular retirement destinations. In addition to bank accounts and stocks, many people are looking to get retirement help from annuities too.

Annuities, sold by insurance companies, are simple financial arrangements when you examine them. People invest a lump sum, or pay a number of fixed amounts called premiums, to the insurance company. Then at an agreed upon time, they begin receiving a series of payments in a fixed amount, typically monthly, which will last the rest of their lives. A lot of calculating, of interest rates and time considerations, goes into figuring out the amount paid in so that it can ...
... pay for the later amounts going out. The insurance companies that specialize in annuities have precise tables that will show how a particular annuity will pay specific amounts in monthly income. Like company pension plans, annuities come in a lot of varieties.

Fixed or Variable
Fixed or fixed-period annuities let people collect specified amounts on a regular schedule, for a set amount of time, usually 5 to 30 years. Insurance companies set the interest rate a year at a time and can change it in the future. Interest accumulates but the payment of taxes is deferred, or postponed, for most people in most situations. When receiving payments from this kind of annuity, there are a number of options people can choose. The "life income" choice means the person receives a check every month for their lifetime. Joint and survivor type annuities also send checks for life but when the person dies, a second party can get those payments for the rest of his or her life too.

A variable annuity has advantages tax-wise, as tax is again deferred or postponed, and also has features of a professionally run investment portfolio. People can select from a number of different investment types and plans, with all kinds of objectives and characteristics, to tailor the annuity to their specific needs. The rate of return goes up and down because the rate of the annuity is tied in with the performance of the various investments that people choose. This means there is a chance of high returns, as well as a greater risk of losing money, much like other investments. Because annuities come in different "flavors," you can have either less or more exposure to these market forces, and it will all depend on your specific situation.

Part of a Bigger Plan
You may have a pension plan with your employer and some investments already, and may not see the advantage in buying an annuity through an insurance agency or from a company directly. With any one of these financial instruments, you can make a strong start in securing your retirement and future. You might want to consider investing in an employer pension plan, mutual funds, and/or assorted stocks and bonds, in addition to an annuity. The more money you save toward your retirement, of course, the more options you have, such as early retirement, a later one with more available income, or whatever is best for your situation. Annuities should be considered just one part of your overall financial plan for your future.

Annuities are an excellent addition to most retirement portfolios because of the way they are focused on generating monthly income. Other investments may or may not earn enough to "throw off" earned interest as income, and it becomes difficult calculating what does and does not pay (and how much) when stocks go up and down, interest rates change and other unpredictable economic occurrences crop up. Annuities are guaranteed to pay a certain amount if they are funded according to the agreement and managed according to plan. In fact, it's among the very few investment vehicles that can make that promise.

It is probably wise to consult an all-around financial professional, like an estate planner or certified financial planner, about how annuities will fit into your retirement planning. The insurance company (and its agents) who are selling a certain product like annuities may not have the broad view you need to factor an annuity into a plan that has other parts. Do some research, get some good advice from a broadly experienced retirement planner and definitely consider an annuity as part of your personal retirement plan. They really can help!
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