What Are Annuities?
What Are Annuities and Why Are They Important?
Annuity
Definition
An annuity is an agreement or contract with an insurance company. You promise to make payments to them, and in return, they promise you regular income sometime in the future. You may make one lump-sum payment or choose a series of regular payments.
Annuities: Perfect for Retirees
Typically, retirees are the primary users of annuities due to the peace of mind a guaranteed income stream provides. This reliable income is especially valuable during times of economic uncertainty or as one approaches retirement. Having a steady source of income can alleviate financial stress and help manage expenses more predictably. Annuities ensure that retirees do not outlive their savings, offering financial stability and security. For those nearing retirement, an annuity can be an essential tool in financial planning, providing a cushion against market volatility and economic downturns.
For Texans
This can be especially important in Dallas/Fort Worth and North Texas, which actually rank among the worst spots in America to retire, according to the personal finance site, WalletHub. Contact Bobby M. Collins for more information.
For Veterans
Annuities can be valuable financial tools for veterans, offering a guaranteed income stream to supplement military pensions and VA benefits. These products provide tax-deferred growth potential and can be customized to suit individual needs. For veterans transitioning to civilian life or planning for retirement, annuities offer stability and protection against market volatility. They can also include features like long-term care provisions and legacy planning options. While annuities have advantages, veterans should carefully consider their specific financial situation and consult with a financial advisor to determine if an annuity aligns with their retirement goals and complements their existing benefits.
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Also, reach out to Collins & Cate for more detailed information.
Types
Fixed
Variable
Indexed
Single premium
Four Reasons to Consider an Annuity
1.
Protection Against Loss of Initial Investment
Financial Independence
One of the hardest but most important factors in retiring with financial independence is figuring out the best way to protect your investment–the money you worked and saved all your life. You need to select safe investments, but also explore a comfortable level of risk. After all, taking zero risk with your money can result in near-zero returns.
Fixed Annuities
With a fixed annuity, you get guaranteed protection that your initial investment will never decrease. Or, you can choose a Fixed Immediate Annuity, where you receive a fixed payment now, or a Fixed Annuity that is deferred, for a set rate of payment later.
Variable Annuities
If you choose a variable annuity, the amount you’ll receive will change from time to time. Again, you need to weigh the additional risk of a variable rate is worth the potentially higher returns. Reach out to Bobby M. Collins to learn more.
2.
Fixed income for life
Security
While terms and time-frames of annuities vary, there are many that provide fixed income for life. With some, you can specify how long you want to continue receiving payments. The security of knowing exactly how much to expect from one source of income can provide peace of mind in retirement.
Straight Fixed Annuity
If you select a straight life fixed annuity, it’ll pay you a fixed amount until death but have no benefits for survivors. This is a great option if you’re mainly concerned about fully funding your own retirement accounts.
Joint Life Option
Another option is a joint life with last survivor annuity which costs more, but provides for a surviving spouse. This fixed income for life is ideal for couples needing to provide fully for both people. See more below.
3.
A Way to Pay for Long-Term Care
High Health Costs
Long-term care is costly, as we all know. Nursing home care can cost almost $6,000 per month as of 2021 in Texas (according to a Senior Living study), and the cost jumped 10% from 2016 to 2020. Insurance is one option that people use but policies may expire before you need them.
Help with Finances
Annuities can fill in the gaps in retirement finances. They provide steady and predictable income, which can be a lifesaving hedge if and when you need health assistance.
Tax-Free
A lifetime annuity can provide a set amount of funding when there are no other choices. You can often get the option of a long-term care contract built into a fixed or indexed annuity. This increases your monthly benefit in the event that long-term care is necessary. Plus, these types of withdrawals from your annuity are tax-free, which can be an important consideration.
4.
Annuities Provide Income for Your Loved Ones
Assurance
Another benefit of annuities is assurance that your family will be financially secure. Many variable annuities offer an option to get death benefits for beneficiaries after you pass away.
For Family
This helps ease concerns that you could die during your funding phase. Without that death benefit, your spouse or surviving family members might end up with nothing from the annuity.
Other Options
There are specific death benefit riders and enhanced death benefit riders that protect your initial investment. These ensure that your beneficiaries get a guaranteed amount even in years of poor market performance. Again, reach out to Bobby M. Collins for details.