Outliving one's retirement funds could possibly be one of the scariest thoughts when thinking about retirement. Unfortunately, it does happen but there is an investment product available that can help make sure there is enough money available no matter how long one may live.
An annuity can provide income for life. Unlike traditional life insurance where beneficiaries would get a payment when the policyholder of the life insurance policy died, with an annuity the policy holder can collect the life insurance money while they are still living. In fact, many companies that have retirement plans or pensions are actually using annuities to provide those retirement funds to their employees.
Annuities are a great tool for one to consider when choosing a retirement vehicle. Of course, as with any retirement portfolio, an annuity should not be the only retirement choice but should be used in conjunction with other retirement funds such as one's personal savings and 401K plan.
There are four basic types of annuities:
Fixed Annuity: This annuity will provide a certain dollar amount of payments over a specific time period or term.
Variable Annuity: The variable annuity will provide varied payments because the payments are based on the performance of the investments in the annuity.
Immediate Annuity: In an immediate annuity the annuity payments would begin immediately after the payment of the annuity is made.
Deferred Annuity: With a deferred annuity the annuity payments would start at a later time period in order to give the annuity investments time to accumulate more.
Choosing the type of annuity for one's investment portfolio can depend on many factors including the age of the individual, how much they already have saved for retirement, how much of an annuity premium can they afford, how much they want for retirement and how and when they want their retirement money paid to them.
Deciding on a payout option is another consideration with an annuity. The payout option is how one would choose to get their annuity money. There are six main ways usually available for an annuity payout option:
Life: The life annuity payout option will provide payments to the annuity policy holder as long as the policy holder lives.
Life and Cash: Provides payment to the annuity policy holder for life but if the policy holder dies before the money that the policy holder paid into the annuity was not received, then that remaining amount of money would go to a beneficiary specified by the policy holder.
Life with Term Certain: Again, provides payments to the annuity policy holder for life but if the annuity policy holder dies before a certain term of time then a beneficiary specified by the annuity policy holder will be able to receive payment for the rest of the specified term.
Joint and Survivor: This annuity will provide payments for life to the annuity policy holder and their spouse. The amount provided usually is lower once one of the partners dies.
Fixed Period: A fixed period annuity payout option will not provide payment for life but for a fixed time period.
Lump Sum: This type of annuity again, will not provide payments for life but instead a lump sum payment.
Annuities are a complex product. There are many other considerations to factor in when one is deciding if an annuity is the right choice for them. These factors include items such as the tax advantages and/or disadvantages compared to other retirement vehicles, annuity surrender charges, what payouts are available if the annuity policy holder is admitted to a nursing home facility, the varying fees associated with annuities such as commissions and surrender charges and the strength of the insurance company providing the annuity. Because of these considerations and the complexity and importance of what the annuity is being used for, one should always consult a professional to help them find the best annuity for their personal retirement situation.
