The fact is that many Americans are not prepared for retirement. This is in part because the United States culturally places so much emphasis on working years, and many Americans live paycheck to paycheck. Therefore, it’s difficult for them to save in general, let alone save for retirement. Lots of people don’t think about retirement beyond the basic retirement plans that they pay into through their workplace plans. However, these often don’t provide enough money for people to live on through retirement. On average, American retirees live to be 79. However, they retire, on average, at the age of 63. Therefore, Americans should probably save enough for retirement to live comfortably for at least 16 years; though they should probably over-save just in case, as they may very well live far beyond 79. Many people are not doing this, and aren’t even familiar with what their social security benefits will entitle them to.
For these reasons, it’s imperative to work with top financial advisors when designing your retirement plan. You’ll probably come across a lot of terms and issues that you aren’t familiar with during this time, among them the idea of a retirement annuity. What is a retirement annuity, and will it suit your purposes? That’s what we’re trying to find out.
What Is A Retirement Annuity?
When trying to understand the concept of a retirement annuity, you must first understand the basics of an annuity in general, as annuities go far beyond retirement. An annuity essentially is when a person puts aside a specific amount of money in advance of a particular date or event, like retirement. They will then receive regular payments from this sum of money over time. The designated time period for payments can extend through a person’s lifetime, or it can be specifically set at a certain amount of time, like 10 or 20 years. You can understand why a retirement annuity would appeal to people at face value, but there are actually different types of retirement annuities available, and certainly they were not all created equal.
What Are The Different Types Of Retirement Annuities?
The first type of retirement annuity that a lot of people look into is a fixed annuity. A fixed annuity is essentially what we described above, without any kind of variation. It provides a set amount of money over a fixed period of time. Its contrast is the variable annuity, which provides the ability to choose from a selection of different investments, and therefore the amount of payments that you receive will depend on how well your investments perform. You payments could be much larger than they would be with a fixed annuity, or they could be much smaller. An immediate annuity would involve making a single lump sum payment, and then immediately receiving payments throughout the rest of your life. On the other hand, a fixed-index annuity is tied to a market-based index, and usually guarantees a minimum income amount as well as potential gains. Finally, a deferred annuity will allow the recipient to receive their payments at a later date, usually after at least a year of waiting, though they may wait for many years.
What Are The Benefits Of Choosing A Retirement Annuity?
Now, the question is: regardless of the type of retirement annuity a person chooses, is a retirement annuity truly right for them? This depends on a number of different factors, which defines why it is so important for the potential retiree to work with a financial advisor when making their decisions. The interesting benefit of choosing an annuity is that when that annuity is purchased, a lot of the risks that come with retirement are moved to the insurance company through which the annuity is purchased. The guarantee of the annuity is a major safety net for a lot of people. Furthermore, as there are so many different types of annuities available, there is a real level of flexibility available for retirees.
No matter what retirees or potential retirees choose, however, they should do so with the help of a professional. A financial advisor can guide you to make the decisions that are best for you and your retirement.