As more Americans edge toward their mid-to-late 60s, it’s a good time to reconsider how you can use annuities. Annuities are one of the few financial products that provide the features and benefits needed to provide guaranteed protected income during times of inflation.
Here are 23 detailed steps on how people nearing retirement can use annuities to meet their financial needs:
1. Avoid Market Loss and Downturns
Use a fixed indexed annuity structure to ensure that the principal paid for the contract is not lost due to a market downturn. Buyers of fixed index annuities will never receive less than zero percent interest at any given time on the loan.
2. Create a Lifetime Revenue Stream
Transfer the amount of money for unnecessary permanent life insurance to an annuity product with an untaxed exchange.
3. Accelerate Revenue Generation
Take advantage of annuity tax deferral to earn interest in three ways: principal, interest, and tax savings.
4. Generate Protected Income from Accumulated Assets
Transfer funds from a 401(k) or other qualified retirement savings plan to an annuity so that you can use the annuity as an optional source of income so that the funds raised to create a protected, guaranteed income stream.
5. Income Planning for Small Businesses
Take advantage of deferred annuity income to create a lifetime income stream for small, qualified plans by making the annuity investment in a qualifying plan.
6. Maximize Social Security
Buy a floating annuity that secures your current retirement income while postponing access to social security benefits to qualify and maximize your inflation-adjusted monthly social security payments.
7. Deferred Tax Accumulation
Use deferred annuity to accumulate deferred tax. Annuity income is not taxed until it is collected or until the buyer starts receiving regular payments.
8. Basic Protection
Take advantage of contractual guarantees for fixed annuity products to protect the amount of principal. Loses are avoided due to the contract.
9. Avoid Market Decline
Buy a fixed-term annuity contract as collateral against lower stock market risk to keep capital for later, when you retire.
10. Give to Family Members
Use the income annuity to generate cash flow to give a cash gift to family members, to fund education, downpayment or other transfer.
11. Help with Healthcare
Annuities help with home care, exemption from fatal illness for sickness benefits, or better income deductions for chronic illnesses.
12. Diversify
Use the various options available in index fixed annuities or variable annuities to achieve saving objectives.
13. Reduce Risk
Use fixed-rate annuity to protect against the risk of major market downturns in the first years of retirement.
14. An Alternative to a Low-Bank Product
Use a multi-year fixed annuity (MYGA) as an alternative to buying a mortgage certificate to get a higher return.
15. Basic Cost of Living Fund
Buy a yield annuity or use deferred annuity yield options to finance significant pension-related costs. This approach frees up other assets for investments with potentially higher returns than inflation-compensating asset classes.
16. Life Insurance Savings
Use the annuity to deposit an “underwater” life insurance contract by converting the amount of money transferred into the premium paid for the lifetime income.
17. Sources of Financing Long-Term Care
Use a deferred annuity to fund long-term care premiums (LTCs). If set correctly, the owner will receive an untaxed way to fund the long-term care premium.
18. Have Life Benefits
Take advantage of benefits and optional supplementary insurance for deferred annuity products to gain life benefits, such as exemption from home care, exemption from fatal illness for sickness benefits, or better income deductions for chronic illnesses. Note: The available life benefit will depend on the package of offered by the underwriting life insurance company.
19. Reduce the Risk of Longevity
Use a deferred income annuity or a qualified long-term annuity (QLAC) as collateral against surviving savings. The options can give an extremely long service life.
20. Medicaid Spending Protection
Buy a Medicaid-eligible annuity to keep your assets.
21. Create an Annuity Using Pension
Buy income now bucket income annuity, deferred fixed or variable annuity for income later bucket and a third group using deferred fixed or variable annuity income to meet the required minimum distribution need.
22. Supplement Pension
Use annuity and optional supplementary income insurance on annuity products to create a protected flow of supplementary retirement income.
23. Survivors’ and Property Benefits
Use the internal components of deferred annuities so that proceeds are paid directly to designated beneficiaries to avoid probate delays and costs.
The above ideas simply scratch the surface of how the tax-expanded structure, income opportunities, product guarantees and optional benefits of annuity products can be used as a tool to help consumers meet their financial needs as they head toward retirement.
Feel free to reach out to Bobby M. Collins for additional information.