Retirees want to secure their future financial status. Annuities can play a big part. Let’s consider how annuities can help individuals and families who are entering their retirement phase.
While annuities provide several benefits in the form of increased rate of growth in savings through tax-deferred growth, competitive returns, and security (through various guarantees) they also offer another important benefit– insurance against financial instability. You can invest as much as you want in an annuity, leave it there to grow as per the rate of interest promised to you, and withdraw money when you need it. Lastly, you have several choices about how and when to withdraw your money.
Here are several benefits that contribute to stability:
1. A fixed annuity is often an appropriate choice for seniors because it offers the promise of a steady income when annuitized. Buy ‘term certain’ fixed annuities if you want to collect income over a particular time period only. Or buy a life annuity if you want to receive income for your entire life.
2. Several fixed annuities offer special features that can be useful for seniors. You can receive systematic or flexible withdrawals. This gives you the freedom and pleasure of creating your own “pension.”
3. Every fixed annuity provides a principal guarantee, so you can be assured of receiving at least the initial premium you paid (less potential surrender charges or other costs).
4. You may choose a nursing home waiver feature. This would relieve you of paying surrender charges if you fall sick at any time during the annuity period where you are required to cash in your annuity to pay for your nursing home bills.
The amount of payback for fixed annuities depends on the amount you have invested, as well as on your life expectancy. But be vigilant about all the details of the annuity contract before you sign. Note that annuities once annuitized cannot be surrendered for value. Income from deferred annuities is taxed as ordinary income and withdrawals prior to age 59½ are subject to a 10% penalty. Income from annuitization is taxed part as ordinary income and part as return of capital. Any guarantees are based on the claims-paying ability of the insurance company. Annuities should be considered long-term investments. Riders such as nursing home waivers may have additional costs.