What Is An Annuity And How Can It Fit Into Your Retirement Plan

Having an annuity can balance out your retirement investment portfolio. This provides you with a constant stream of income. In most cases, you can have the safety of a continuous source of income regardless of what the stock market is doing. Annuities have been gaining in popularity with financial planners. They are using this as a tool to help their clients to have a more diversified source of income stream. This helps during retirement and as a hedge against a rocky financial market.

What Is This?

An annuity is an insurance product that provides you with a continuous stream of income after you deposit a lump sum with an insurance company. For example, when someone wins a lottery, they typically have the choice to take a lump sum payment or receive equal payments over the course of a certain set number of years. That monthly payment option is a form of one. Annuities can be paid for a person’s entire remaining lifetime . They can continue to payout for a set number of years after your initial investment. They can also either be paid as a fix rate each month or a variable amount based on investments.

What Are The Different Types Of Annuities?

There are many different types of annuities that you can purchase. They range from life annuities, variable annuities, immediate annuities, deferred annuities, and others. One of the most popular forms is an immediate annuity that provides you with an immediate monthly or yearly payment. This is in exchange for your lump sum payment to the insurance company that issued your annuity contract. Another popular form of annuity is the variable annuity. A variable annuity allows a portion of your annuity to be invested at your discretion in certain investments. It varies, hence the name, based on the market returns of the investments you choose. A deferred annuity continues to grow in an account after you make a deposit with the insurance company. It also builds until you begin to make withdrawals later in life.

How Can An Annuity Fit Into Your Overall Financial Plan?

Once you have built up a sizeable nest egg, you can fall victim to the market’s swings. If you are close to your retirement date, a downturn in the stock market can be devastating to your portfolio balance. That is if you are required to make withdraws to fund your retirement when the markets are near their lowest levels. By purchasing an annuity with a portion of your nest egg, you can lock in a certain amount of guaranteed income during retirement regardless of what the stock market does. This can provide you with a baseline and a certain peace of mind as you enter retirement. When used with a well diversified investment portfolio and complete financial plan, annuities can add a well rounded dimension to your assets.

An annuity is a great additional asset that you can have in your retirement portfolio. Now, more than ever, having a guaranteed stream of income during retirement (or as you are about to enter retirement) has become more important than ever in today’s market.

Tom Fischer is an annuity specialist in Scottsdale, Arizona area. Tom has been an advisor for more than 16 years. Please subscribe to this blog for ongoing articles and videos by Tom.