As retirement approaches, one of our most daunting questions is: “Will I have enough money to last for the rest of my life?” A single financial vehicle may provide a resounding “yes” to that question—fixed annuities. While they may not be as flashy as some investment options, fixed annuities have steadily gained recognition for their reliable role in retirement planning. Here’s why fixed annuities are worth your attention.
The most appealing feature of a fixed annuity is its promise of guaranteed income. When you purchase a fixed annuity, you pay a lump sum to an insurance company. In return, you receive regular, guaranteed payments for a predetermined period or even for life. This reliability is especially valuable when a stable income stream becomes crucial in retirement.
Insulation from Market Volatility
Unlike equities or bonds, fixed annuities are not directly exposed to market volatility. Your payout remains the same regardless of economic downturns. An Employee Benefit Research Institute study found that those with annuity-based income streams feel more financially secure than those relying solely on market-based assets.
The tax-deferred growth that fixed annuities offer is a substantial benefit. Your funds can grow without being eroded by taxes, allowing the compounding effect to work its magic over time. The tax liability only arises when you withdraw, often during retirement when you’re likely to be in a lower tax bracket.
Flexibility in Payout Options
Fixed annuities offer a variety of payout options to suit different needs. You may opt for a life annuity that provides income as long as you live or a joint-and-survivor annuity to ensure your spouse receives payments after your death. There’s also the option of period-certain annuities that pay for a fixed number of years, safeguarding against the risk of “outliving” your assets.
Contrary to popular belief, fixed annuities can offer competitive interest rates compared to other low-risk investments like CDs or Treasury Bonds. The guaranteed rate of return over the annuity term often outperforms these alternatives, especially during periods of low-interest rates.
Evidence Backing Fixed Annuities
Research is robust in this area, supporting the role of fixed annuities in retirement planning. The Stanford Center on Longevity, in collaboration with the Society of Actuaries, published a study suggesting that converting a portion of your savings into a fixed annuity may substantially improve retirement readiness. The report showed that annuities may provide equivalent income with lower capital than a portfolio entirely invested in traditional securities.
Alicia H. Munnell, director of the Center for Retirement Research at Boston College, similarly endorses fixed annuities, emphasizing that annuities “insure you against outliving your resources,” a key concern in an era where life expectancy is increasing.
While fixed annuities may not be the silver bullet for all retirement woes, they offer a strong financial security layer. With guaranteed income, tax benefits, and insulation from market risks, they deserve serious consideration as part of a diversified retirement strategy.
Don’t let the uncertainty of retirement income keep you awake at night. Take action today to explore the many benefits of fixed annuities. Speak with a financial advisor to evaluate how this reliable financial tool seamlessly fits into your retirement plan.
- Guaranteed Income: Fixed annuities provide a reliable, consistent income stream, making them a cornerstone for any retirement plan.
- Market Insulation: Your payout remains unaffected by market volatility, offering you a financial safety net.
- Tax Benefits: The tax-deferred status of fixed annuities enables your investment to grow faster, compounding your returns over time.
- Flexible Payouts: With various payout options like life annuities, joint-and-survivor, and period-certain annuities, you may customize your income based on your needs.
- Competitive Rates: Fixed annuities often offer better rates than other low-risk investment options like CDs or Treasury Bonds.
Brad Pistole, a native Missourian, is a member of Syndicated Columnists, a national organization committed to a fully transparent approach to money management. Syndicated Columnists is the sole provider of this material, both written and conceptual, for this column. All rights reserved.
Trinity Insurance & Financial Services Inc. 5511 N. Farmer Branch Rd., Suite 101, Ozark, MO 65721. 417-581-9222 Brad Pistole (retirevillage.com)