Video Transcript
When might an annuity make sense in a financial plan? Annuities can play an essential role in a financial plan by providing guaranteed income during retirement. There are three key signs an annuity may be a good addition to a financial plan.
But first, let’s start with the basics. Here’s a quick overview of what an annuity is.
Annuities can provide a steady income stream. You make one or multiple purchase payments – depending on the type of annuity – and can choose to receive regular income payments that start either right away or in the future.
There are different types of annuities available to meet various needs. For example, with some annuities, money is protected from market swings. With others, there is potential for growth tied to the market.
The first sign that an annuity may be a good fit for someone’s financial plan is if they like the idea of receiving a paycheck during retirement. An annuity is one of the only financial products that can offer income for life. Income from an annuity can be used to help cover everyday expenses.
The second sign that an annuity may be right for someone’s plan is if they’re looking for a tax-deferred way to accumulate more for retirement, but have maxed out their 401(k) or IRA, for example. With an annuity, gains aren’t subject to income tax until income payments begin or money is withdrawn.
The third sign that an annuity may fit into someone’s financial plan? They have other income that provides immediate access to their money. An annuity can be a great complement to a strong financial plan that already includes liquidity. Portions of an annuity’s account value can be withdrawn and used as an ongoing source of income, but if you need full access to your money, an annuity may not be the right choice.
Many, but not all, annuities charge fees for early withdrawals. And, depending on the type of annuity, money may have better growth potential the longer it remains in the annuity.
Talk with a financial professional to determine whether an annuity is right for you.
To better understand different types of annuities and related terms, download the Annuities Language Glossary created by Alliance for Lifetime Income, a nonprofit educational organization committed to making the language of annuities simpler.
Download Glossary