One of the most important decisions about your retirement savings that you can make is where to invest your money. A frequently overlooked option is an annuity. An annuity is an insurance product that offers many guarantees.
Annuities come in many shapes and sizes, breaking down according to when you invest in them and how you wish for them to invest for you. The one major unifying thread is that they will all work to create retirement income, prohibiting an income stream for the rest of your life, no matter how long you may live. This is the first major benefit of an annuity.
The guaranteed income stream will be influenced by whether you chose to invest in a fixed or variable annuity:
As a general rule, a fixed annuity will guarantee specific terms and the income will follow pre-determined patterns. The income may stay constant for life or increase according to a specific scale.
A variable annuity will provide a guaranteed minimum amount but the income amount may increase according to the performance of the funds your annuity is invested in.
The second benefit of an annuity is protection from a declining rate environment. With the current economic slump many investments have lost substantially. If you were in an annuity, fixed or variable, your income would not have been hurt by the loss incurred on your investments.
Fixed annuities have nothing to do with the market and are totally guaranteed by the insurance company. Market fluctuations do not affect the income amount.
Variable annuities are affected by the market, but have built in protections from declining markets. Even when the market is down and your investment has suffered many variable annuities guarantee that your income amount cannot decrease in any year.
The third benefit of purchasing an annuity is that they are not attachable in lawsuits. What this means is that in the event that you are being sued no one can come after the money that you have in an annuity. Further, in the event of your death, beneficiaries cannot contest annuities, meaning that whoever you select as the beneficiary will receive those funds, guaranteed. It cannot be contested in court.
Purchasing an annuity provides several excellent benefits that cannot be obtained anywhere else. While annuities are not right for everyone, the benefits of an annuity are best considered. Guaranteed lifetime income, guaranteed minimum rates, and the incontestability of an annuity in court are excellent benefits, particularly when an annuity typically pays an excellent interest rate, well over what a typical bank certificate of deposit pays.
Annuities may be the right product for you!