Approximately 25% of American adults have no money saved for retirement.
If you don’t have any money saved for your retirement, you might want to start saving now. One option you can use to save for retirement is an annuity.
Many people don’t understand what annuities are or if they’re good investments.
If you’re wondering if an annuity is a good investment, continue reading. In this guide, we’ll cover this topic in detail to help you learn whether this is a good investment for you to consider.
The Basics of Annuities
Before you can determine if an annuity is right for you, it might be wise to ask the question, “what is an annuity?” Learning the annuity definition is vital before choosing one, as this helps you understand what it is.
An annuity is an investment that is different from most other investments. The main difference is that you purchase it from an insurance company instead of working through a financial planner or adviser.
An insurance company sells you the annuity for a set price. You can pay for the annuity in full upfront or make payments on it.
After buying it, the insurance company guarantees to provide you with a stream of payments when you reach a specific age. If you die before this age, someone else can likely collect these payments.
When you purchase the annuity, you can choose an immediate annuity or a deferred annuity. An immediate one provides payments right away, while a deferred one doesn’t start issuing payments until a later point in time.
How to Use Other Types of Investments for Retirement Savings
Annuities are great investments for some people, but you can also invest money in other investments. If you’re considering using an annuity, you might also want to consider a few other options.
Here is a couple to consider:
401k
First, does your employer offer a 401k program at your job? If so, investing in this first is often the best way to go.
When you invest in a 401k program, you receive the benefit of deferring your taxes on your contributions.
Secondly, your employer might match some of your contributions, which means you may grow your investment faster.
IRA
The second option is an IRA, which stands for ‘individual retirement account’. An IRA lets you contribute money into a fund for retirement, and you can choose from a traditional IRA and a Roth IRA.
Most people use several types of investments for their retirement funds. Therefore, you might want to consider using some of these options and an annuity.
How They Work
Understanding how an annuity works is vital if you think you might want to purchase one. You’ll need to follow a few steps to buy one, and you might have to make a few decisions.
The first step is to find a reliable company that sells annuities. Next, you’ll need to use an annuity calculator to determine how much to invest in it. Annuities calculators also help you determine how much you will receive in payments.
Next, you must choose whether you want an immediate or deferred annuity. If you need payments from it right away, you’ll want an immediate one. If you want to start receiving payments later, choose a deferred annuity.
After that, you must decide how you want to receive your payments. Do you want to receive one lump-sum payment at a certain age? Would you prefer receiving annual payments starting at a certain age?
You can customize your annuity to fit your needs. If you want to use the payments as your main source of income when you retire, you might want to ask for monthly or quarterly payments from the annuity.
The Benefits of Buying an Annuity
Annuities offer many benefits. The main benefit is that they offer a guaranteed income. When you buy the annuity, you’ll have predictable and reliable payments coming from the plan when you reach a certain age.
The second benefit of an annuity is that you can customize it. You aren’t buying a product that offers just one option. Instead, you get to choose how yours works and how often you receive payments from it.
Another benefit is that the money you invest in the annuity allows you to defer the taxes on it. As a result, using an annuity offers a great way to save money for your retirement.
You can learn about more benefits of annuities by contacting an insurance company that sells them.
The Top Reasons People Purchase Annuities
In most cases, annuities are best for people in one certain financial position. If you have other retirement investments that you currently max out, an annuity is a great addition to your portfolio.
Most retirement accounts have limits on how much you can invest. For example, if you open an IRA, you can only place a specific amount in it each year.
If you’re under 50, you can only invest $6,000 each year into your IRA. If you are 50 or over, you can contribute $7,000.
With a 401k, you might also have limits. In most cases, they base the limits on a percentage of your income.
If you max out these accounts but want to invest more money for retirement, you can turn to an annuity. This is the situation in which annuities work best for most people.
However, there are other situations when an annuity might also be a good idea. The best way to find out is by contacting a professional that offers them. They can give you more advice to help you decide.
Learn More About Your Annuity Options
After reading this guide, you may understand what an annuity is and the benefits of buying one. If you would like to invest in one, you’ll need to find an insurance company that offers them.
You can contact Freedom Insurance Financial to learn more about annuities. You can call us or request information through our website if you have questions about buying an annuity.