lonWill I have enough money to retire?
This is a question that most people are asking themselves. It gets even more crucial questions as you turn 50 and you see retirement coming forward. Governments won’t be the most generous around with their social pension plans, your employer is probably not under any guarantee to pay a fixed pension and your savings… well you simply hope to not retire before the next crisis.
But what if you could enter in a contract guaranteeing you that you will get paid each month? No more worries, no more uncertainty, just a sustainable income stream for your retirement. Annuities could be a great solution for your retirement plan by providing you several advantages. Here’s a list of a few reasons why annuities and retirement go well together:
You Can Start Investing in an Annuity Today and Retire Later
One of the most unknown advantages of an annuity is the fact you can buy an annuity now and start saving money inside the contract. This is called a deferred annuity plan. You are basically building up your annuity while you still earn a pay check in exchange of a pension like payment at retirement. The interest rate paid by the annuity could be fixed (linked to certificate of deposits and bonds investments) or could be variable (linked to the stock market performance). You are not only building your own secured pension plan with an annuity but you also defer taxes on potential gains realized inside the annuity.
An Annuity Helps You Budget at Retirement
A common mistake with young retirees is to start spending money like they never did. You might be sitting on $500,000 or more in your retirement account (like a 401(k) or a 403(b)), but it could melt faster than you think if you don’t budget properly. A new car and a few oversea trips later and your $500,000 nest egg could drop to $400,000 within a few years.
After the purchase of an annuity, you will receive a steady payment on a monthly basis. Therefore, you will have to budget your retirement needs according to your annuity payment. This is a great way to ensure you don’t fall short after a few years of crazy spending!
The Annuity Insure You Against the Longevity Risk
Do you know one of the most important risks for retirees is to outlive their savings? 50 years ago, a retiree could budget until he is 75 and would not risk to lack of money before his death. Today, it’s not rare to encounter retirees who are 85, 88 and even over 90! My two grandmothers are still living and they are 90 and 92! If they would have bought an annuity at the age of 60, they could have spent a lot more at retirement.
The Life insurance company pays you according to your chances of being or not being alive in the next 10, 20, 30 years. Since they insure a lot of individuals, they calculate their break even point (and their profitable point) where they pay more for a few people who live over 85 and cash the money from the annuity from those who decease earlier.
The Annuity is a Great Tax Management Tool
If you need to withdraw money from any type of pension account, you are deemed to pay an important amount of taxes to the government. Nobody wants to retire and owes money in taxes! As your income is more limited, tax planning becomes crucial.
The annuity payment allows the investors to spread its tax bills across his entire retirement instead of paying taxes on lump sum withdrawals. If you purchase an annuity with cash coming from your bank account, you will also benefit from a tax advantage since part of the annuity payment will be considered as a return of capital and won’t be taxable.
A Retirement Plan Should Analyze Annuities
If you go see your financial advisor for a retirement plan, he should definitely analyze the possibility of adding an annuity or a combination of annuities to meet your retirement needs. There are several uncertainties around retirement and annuities are part of the tools to reduce your worries at retirement.
If nobody told you about annuities, you should speak about it with an advisor for free now.