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  • 3-Minute Article
  • |
  • Jun 11, 2018

Retirement Tools to Consider for Your Plan

How annuities and life insurance can complement other parts of a financial portfolio.

A key goal of a retirement plan is to ensure someone’s savings will last as long as their retirement does.

That means building a plan that can account for uncertainties such as the impact of potential market downturns and rising life expectancies — today, 25% of 65-year-olds are likely to live to age 90.1 Fortunately, there are tools that can help strengthen retirement plans by complementing existing saving and investing strategies.

Annuities and life insurance are two products that can provide benefits such as growth opportunities and potential tax advantages. Here is an overview of the role these products can play in a comprehensive retirement plan, along with considerations to help determine if they might be a good fit.

A Look at Annuities

Annuities can add an element of protection in a retirement plan by turning a portion of savings into a stream of guaranteed income — in some cases, for life. Markets ebb and flow, and when savings are tied up entirely in the market, future retirement income may take a hit during market downturns. Annuities can provide guaranteed monthly income to help cover everyday expenses such as food and housing costs, regardless of market performance.

Some types of annuities allow retirement savings to grow over time — increasing potential future income — while offering some protection from market drops. This growth is typically tax-deferred, which may be appealing for people who are looking for additional sources of tax-deferred retirement savings beyond accounts such as IRAs and 401(k)s. Watch this 3-minute video for more signs that an annuity might fit in a financial plan.

Keep in mind that annuities come with fees in exchange for their benefits. Annuities also typically don’t allow owners to withdraw all of their money during the early years without paying penalties, making them a better complement to plans that have other sources of liquidity for cash needs. Take a closer look at these and other important considerations in “5 Questions to Ask Yourself About Annuities.”

With many options to choose from, putting a portion of your savings into an annuity can be a good strategy to ensure a steady stream of income and tax-deferred growth potential. Work with a financial advisor to determine if an annuity is right for your retirement plan.

A Look at Life Insurance

Life insurance policies are designed to help provide financially for loved ones after you’re gone. But some policies go beyond protection.

Permanent life insurance policies build cash value through the premiums the owner pays, plus growth potential from interest credits, market returns, or dividends. The policy owner can access that cash value through loans or withdrawals to cover retirement expenses — such as a large medical bill — while leaving other retirement savings in place. Withdrawals from a permanent life insurance policy also may be tax-free, as long as the amount taken out does not exceed the value of the premiums paid.2 However, any loans or withdrawals from a permanent life insurance policy will reduce the death benefit, making it important to balance current needs against legacy planning.

The death benefit included with life insurance can also provide more flexibility in a financial plan. For example, policy owners who are using insurance to leave a legacy for their heirs might feel more comfortable spending a larger amount of savings in other accounts for their ongoing retirement expenses.

Talk with your financial advisor about the role annuities and life insurance can play in your portfolio. When added to the savings you already have, these tools can provide protection, growth potential, income, and tax advantages — valuable components of any retirement plan.

To better understand different types of annuities and related terms, download our Quick and Easy Guide to Annuity Terminology.

Download Guide