An annuity is an excellent means of providing a third source of retirement income for those relying upon pensions and Social Security. Most pensioners will need to find some sort of additional stream of income because pensions just aren’t what they used to be.
The days when a person could count a nice monthly income from a pension plan are over. Most persons who have pensions will have to do some retirement planning. There are many retirement planning tools available for persons in their fifties and sixties who are wondering about the soundness of their pensions.
Some of the best tools available are annuities. A couple can use annuities to provide themselves with additional income for the rest of their lives. There is not limit to the amount they can set aside in such tax-deferred investments and since these funds are guaranteed the money will be there.
Annuities vs. Pensions
In recent years, questions have been raised about some of the most historically reliable pension plans. Annuities can be a good alternative means of retirement investing because many of the insurance companies that issue them are in better shape than pension plans.
Indeed, annuities are such a good investment that they have long been used in some pension plans. These investments have been used as a part of pension plans since the 1950s. The first 401K type investments made available to teachers and other government workers in the 1950s only offered annuities.
The reason pension plans turned to annuities was that they were a very safe place to put money. These plans are guaranteed by insurance companies as long as the insurance company is in business a person will receive a regular payment from it.
fixed annuity rates
Annuity Rates
The rate of return on an annuity depends up on the kind of product purchased. It is true that traditional or fixed rate plans have a very low rate of return usually sometimes as low as 5%.
Fortunately there are products that offer a much higher rate of return. Variable and indexed plans can offer a rate of return of well over 10%. These policies can do this because a portion of the funds invested are placed in sub accounts that are invested in stocks and other equities. This provides for a much higher rate of return without incurring the traditional risks of investing in the stock market.
The majority of funds invested in such a plan are still placed in a traditional fixed annuity. That means they are completely guaranteed or insured so there is little or no chance of a person losing all of his or her investment.
Retirement Annuities
The reason pension plans invested in annuities was that they provide two important benefits for retirement. First the funds are guaranteed so investors will receive a payment. Second, the moneys are annuitized this means money is doled out in a series of payments rather than in one lump sum. That ensures holders a regular income and reduces their potential taxes because money in an annuity can’t be taxed.
There are also deferred annuities that allow a person to save funds for retirement. In this kind of vehicle payment doesn’t begin until a set date, until then any money earned is kept in the plan to increase the nest egg. A big advantage to such plans is that they don’t have the restrictions found on IRAs and 401Ks. There is no limit to the amount of funds that can be kept in a tax deferred account.
Something to be aware of is that annuities are very complex investments. In addition to rates some plans come with very high fees so a person needs to do a lot of research before adding such a product to his or her retirement portfolio. If you go with a fixed annuity, lock in those fixed annuity rates before the rates rise.