Annuities can help you round out our retirement plan. You can use an annuity to accumulate assets for retirement or generate income during your lifetime or a beneficiary’s lifetime.
You can deposit a sum of money with a life insurance company in exchange for a guarantee of future fixed income over a set period of time – or even your lifetime.
There are three kinds of annuities:
- Variable annuities mimic traditional retirement accounts because they’re tied to the market.
- Fixed annuities provide a guaranteed interest rate
- Indexed annuities provide a guaranteed minimum interest, rate but allow for growth tied to an equity market index.
You may have already heard a bit about annuities, however there are some myths floating around.
Myth #1: Annuities Aren’t Flexible.
Annuity owners can choose how much money to fund their annuity with, when to begin receiving payments and what kind of payout option they prefer. Depending on the product, an annuity may be able to accumulate indefinitely or offer the owner the opportunity to make subsequent deposits.
Myth #2: Annuities Are Only Good for People Who Don’t Know How to Invest.
Fixed annuities are financial instruments that reduce overall portfolio risk through diversification while providing for predictable and steady growth of assets, regardless of market volatility.
Regardless of your investment prowess, you cannot outlive a life income annuity investment, unlike alternative investment options. This makes annuities a good choice for anyone who wants a safe, predictable, long-lasting investment. Annuities provide breathing room for those living on a fixed income with stable, supplemental payments.
Myth #3: I Don’t Need an Annuity If I have Other Retirement Accounts.
While investing in your Thrift Savings Plan, 401(k), or IRA is always a good idea, retirement accounts do not have the same built-in safety net that comes with a fixed annuity’s life income payout options: guaranteed streams of income that you cannot outlive.
You can diversify your retirement income by drawing from dedicated retirement accountsand receiving annuity payments. This reduces the risk of depleting your savings and may ensure that you can maintain your desired standard of living.
Myth #4: Annuities Are Only for Older People.
While immediate annuities are more often used by people in retirement, deferred annuities offer maximum growth potential when you start them early. This allows for a longer accumulation phase and more compounding of interest earnings.
Individuals who have reach their annual retirement account contribution limits can use a deferred annuity as an additional tax-deferred option to grow their savings while avoiding market volatility.
Myth #5: I’m Guaranteed to Earn a Greater Return by Keeping My Money Invested Elsewhere.
Market-invested accounts never carry guarantees. All your potential returns depend on your asset mix, risk and the amount of time you invest. Money invested in the stock market certainly can earn more than money invested into an annuity over the same time horizon, but the opposite scenario is also possible. A long recession could cost you some of your principal investment and may earn a lower rate of return than expected when you’re ready to withdraw funds. Adding an annuity to your portfolio allows you to diversify your income streams in retirement and help mitigate risk.
People don’t always think of annuities when it comes to retirement but having one in your portfolio can provide a margin of safety, provide predictable income, and enhance your standard of living during retirement. To speak with a Navy Mutual representative about your annuity options, call 800-628-6011 or make an appointment to learn more here.