Retirement income annuities can guarantee payments for life, but weighing the pros and cons matters before deciding if one fits your plan.
Retirement income annuities are annuities that promise a guaranteed payout to investors throughout the rest of their lives. Because that span of time can't be known in advance, this option carries both advantages and disadvantages that depend on a person's individual situation. Even so, a retirement annuity can still fit within the standard annuity categories (namely immediate, deferred, fixed, and variable).
One frequent worry in retirement planning is the fear of outliving your income. Retirement income annuities with terms that supply lifelong income to an investor help ease that concern. Another key point is that taxes are paid as money is withdrawn from the annuity, meaning you only owe taxes on the portion you actually need and take out. And if the retirement annuity is fixed, there's a firm guarantee—of a certain amount—for the remainder of the person's life.
As with any financial product, there can be downsides that keep them from being perfect, and retirement income annuities are no exception. Factors such as the payment structure can add risk and affect how prepared a person is. If the annuity is variable, the payment amounts are less guaranteed, which can make planning and preparation difficult.
There's also a price attached to guaranteeing payments over a long stretch, so the cost of annuities can make them unaffordable compared with a plain savings account or Certificate of Deposit (CD). Even so, the only guarantee an annuity offers rests on the company's ability to pay—tied to its current and long-term financial strength. An extra guarantee can be obtained through riders, but that adds cost and makes these options even less affordable.
Beyond the upfront costs and typical drawbacks, unexpected events may leave investors needing to pull money from the annuity before the agreed-upon date. Doing so can bring additional fees and reduce what would otherwise be available once the surrender period officially ends. And even for those who wait until their period concludes to receive payouts, the rates used to tax the amounts are fairly high relative to other investment options.
Quottes works with leading insurance companies that offer a variety of financial products, including potential retirement income annuities. We provide impartial guidance so you can make well-informed choices. It's important to grasp the various risks tied to annuities as well as the different types on offer. Keep browsing our site for more information, or call 941-894-6460 to speak with one of our agents.
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