Loading
Pre-Retirees and Annuities
Most people build an investment portfolio that will ensure them a specific amount of monthly income after they retire. This can involve everything from 401k plans and IRA accounts to pensions, stock portfolios, savings and annuities. All of these items will behave in a different way and serve a different purpose, and the intention of a good investment strategy should be to create a well-balanced portfolio.
For many people the idea of a company pension is a fantasy. Companies just don’t offer that type of benefit any longer, but with the purchase of an annuity an individual can create something very similar to a pension plan for themselves. Annuities are extremely simple and come in two varieties: fixed and variable. They both require a single, lump sum payment to an insurance company who will then invest the money and deliver a monthly payment to the annuitant.
The differences between fixed and variable are also very simple. For the fixed annuities there is a set, or fixed, monthly income that has a pre-determined number of years that it will be paid. These tend to cost the investor a bit less, and they will yield less than the variable annuities. This is because variable annuities are invested in certain stocks or money markets, and when they do well the annuitant receives an increased monthly payment. Though these can often be of a significantly higher cost than a fixed account they can deliver a far larger amount of income than fixed accounts that may get locked into a low interest rate.
How does someone choose the annuity that is best for their retirement plans? It takes some serious planning and consideration to identify the right investment vehicles, and annuities are no different. There are some serious considerations about the need for funds. Once an annuity is purchased it is virtually impossible to get the investment capital returned, and some have death provisions that leave no money for the heirs of the annuitant. When reviewing annuities it is important to address the financial needs of the individual, their heirs and the terms of the deal.
Annuities can work to provide a guaranteed stream of income, which can be quite liberating to an investor who wants to pursue some aggressive tactics in other financial areas. They can be a great tool for developing a well-balanced portfolio as they will provide a guaranteed monthly income.