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Can Annuity Help Fund Your Retirement? Here's What You Should Know


The year 2021 just passed you by, and now you have 2022 to think about. This means that there are certain bills and expenses that need to be paid, such as holiday shopping, college tuition, etc. Which brings up the age-old question: How can you possibly afford to retire?

It might seem far-fetched right now, but having a plan for your financial priorities is crucial if you want to live comfortably during your golden years. If your goal is to have income after retirement so you can maintain your standard of living without working, an annuity may be an effective option for you.

What is an annuity?

Annuities are often confused with retirement plans. While they may be related, annuities and retirement plans are different financial instruments that serve unique purposes. A good strategy for your future is to invest in both of these vehicles because each offers a little something different when it comes to planning for the future. 

An annuity is much like a savings account in that it provides tax advantages, creditor protection, and the flexibility to withdraw funds. However, unlike a savings account, an annuity offers many additional benefits. To have a better understanding of what an annuity can do for you, gather everything you need to know on annuities to take full advantage of it. Below is some information on this type of insurance plan so you can utilize it in funding your retirement. As we proceed further, some of the benefits of annuities will be discussed and how they can contribute in one way or another to making your retirement secure.

Guaranteed income for life

This is the first point that can help answer the question in this article. An annuity can help fund your retirement by giving you a steady stream of income before and after retirement. For instance, when retired people suddenly stop receiving work-related income, they often experience financial difficulties because they don't have any savings to use. On the other hand, even though annuities are considered an investment opportunity where returns are not necessarily guaranteed, there is still a chance for them to get higher than expected profits in the long term depending on how well their investments turn out. 

If one of your retirement goals is to have an income stream for as long as possible, then buying an annuity can help. Annuities can be designed so that they pay out a guaranteed monthly or annual payment for life -- even if you live to be 100 years old! This can especially come in handy for those who have been widowed or divorced and don't have a partner to help share living expenses.

Annuities can generate tax-deferred returns

If you're looking to generate tax-deferred returns, then investing in an annuity can be a very useful tool. The value of your annuity grows on a tax-deferred basis. This means that you don't have to pay taxes until you withdraw from it. Then, when you do start withdrawing money from your annuity, the amount on which you owe taxes is lowered by the growth of your account.

It guarantees lifetime withdrawal benefit

If your retirement savings aren't quite up to the challenge of providing an income you can live off of, then buying an annuity might do the trick. An immediate fixed annuity provides a guaranteed lifetime withdrawal benefit. What this means is that if at any time during the life of your contract, you start withdrawing more than 4% per year (or some other agreed-upon amount), then your insurance company will make up the difference with their own money -- as long as they're able to continue making payments on your annuity!

An annuity can provide death benefit protection for your estate

You may want to consider buying an annuity in order to protect your estate if you already have a mortgage or are paying alimony or child support. The money can be used for any purpose you desire until the beneficiary needs it. Having an annuity means that the insurance company will take care of all sorts of things even when you're no longer able to do so yourself - like managing your money or making sure that your bills are paid on time. Also, with the money from the annuity, your loved ones will be able to receive an allowance as well as handle all of your expenses instead of you needing to spend a lot for their needs. In addition, if the insurance company is trustworthy with a long-standing reputation, then they will make sure that you only pay the lowest rates possible for annuity plans.

An annuity is protected from creditors

You can also use your money in an annuity to protect yourself against creditor claims by using the irrevocable trust option if you decide to invest more than $100,000. You usually have a few days after making the investment to change your mind and get all of your money back. This may become particularly important if you are ever sued for malpractice, divorce, bankruptcy, etc. because money in an annuity is protected from creditors. 

An annuity provides flexibility

Perhaps the greatest advantage of an annuity is its flexibility. For example, if you don't make a joint annuity, guarantees will not be paid to your spouse if you die first. However, if the owner dies first it would automatically become a joint and last survivor annuity as long as your beneficiary survives for one full year after your death. In other words, the policy doesn't have to go through probate when you die so there is no need for court supervision. 

After knowing some facts about how an annuity can help fund your retirement, it's safe to say that having one is not a bad option at all. However, there are still several things that need to be done before deciding whether or not it's worth making investments into this type of plan. First, finding out your future expenditure and how much you need to live comfortably for the rest of your life will be helpful when starting an annuity plan. A lot of research has to be done, but by doing so you'll know if having one is right for you or not. Hopefully after reading this article, you should know enough about annuity basics to help make an informed decision. If you are investing in any other type of investment, consider if it is better for your retirement than an annuity.


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