Annuities as Retirement Tools

Comments Off by in CMW News
March 1, 2019
Annuities as Retirement Tools

Image Copyright Ted Grussing Photography – Used with permission

If you are retired or about to retire, you want to be certain that the income from your nest egg is enough to support you for as long as you need it.

In the past we have discussed some tips to consider when you begin taking income from your portfolio managed by a retirement specialist. Today we would like to discuss another option available for retirement income—annuities.

For those who are unfamiliar, an annuity is basically an insurance contract with a company. The company will take your lump sum and agree to make payments to you for either a set number of years or for your lifetime.

And there are 2 types of annuities:

  • Immediate annuity: Which means your payments start immediately. This is usually about 30 days after the company receives your money.
  • Deferred annuity: You roll your money into an annuity and delay taking payments until sometime in the future. You can continue to add money until you annuitize.

‘Annuitize’ is the key word here and means you have formally requested in writing for the payments to begin coming to you on a consistent basis. But take caution that once you have annuitized a contract you cannot change your mind.

For example: say you have $1 million which you are free to take money out of anytime you want. Once you annuitize the annuity payments will start coming and you cannot stop them. So the main negative in annuitizing a contract is that you will no longer have free access to your million dollars. There are no exceptions; you will not be able to take money from your $1 million even for an emergency or health care crisis.

Additionally, please keep in mind that you do not have to roll your retirement money into an annuity just to keep the tax deferral. Rolling your money correctly into an IRA will protect tax deferral.

We recommend never annuitizing more than 20% or 30% of the retirement assets you have. It can potentially give you the best of both worlds—a managed income and a nest egg for any emergencies that may come up.

Be sure to do your research and speak with a qualified professional before deciding if an annuity may be right for you.

Have a wonderful weekend!