Whether you’re nearing retirement or still in the planning stage, you may want to consider an annuity as a way to help complement your retirement income strategy.
Annuities are designed to help you meet your long-term retirement goals by providing a steady stream of income, meaning you’ll have access to a regular cash flow.
In addition, some annuities can also help mitigate your portfolio’s overall exposure to risk while still offering growth potential. As annuities can be versatile, it’s important to understand the role they could play in your retirement planning efforts.
Down to the basics: What is an annuity?
In the simplest sense, an annuity is a contract between you and an insurance company, wherein the insurance company provides you with regular income payments, beginning either immediately or at some future date, depending on the type of annuity being purchased.
Annuities can be purchased with either a lump sum payment or through a series of payments leading up to the distribution period (i.e., the time when income payments begin). Some annuities offer additional benefits such as lifetime income payments, downside protection, enhanced death benefits, and growth potential based on the performance of certain investments held within the annuity itself.
Given the numerous products available, investors may want to consider speaking with a Financial Advisor to make sure the annuity they are considering aligns with their financial goals, time horizon, tolerance for risk and other personal factors.
What are the 3 key benefits of annuities?
As noted above, annuities are another instrument in your retirement planning toolbox, offering you an additional level of flexibility. The key benefits of utilizing an annuity for retirement income planning include:
- Guaranteed income: Just because you’re retiring doesn’t mean your bills are going to do the same. Annuities can generate guaranteed lifetime income, allowing you to retire with a "paycheck," to put it in more familiar terms. This can also help mitigate the risk of outliving your retirement assets.
- Growth potential: Annuities allow for tax-deferred growth of your investments during the “accumulation phase.” This can help you take advantage of the power of compound growth to help maximize your ability to save for retirement. Some annuities offer exposure to the markets to allow for growth potential while still offering some levels of protection against losses.
- Additional financial planning flexibility: Even with an IRA, employer-sponsored 401(k) and Social Security payments, you may still have a retirement income gap – the difference between the cost of your retirement lifestyle and these various sources of income. An annuity can help supplement your income plan, freeing up other assets to be invested toward growth to fill this gap, or possibly freeing up assets to pursue other investment goals altogether.
Note: While there are many benefits to using annuities, it should be noted that annuities are subject to risks and limitations. Guarantees offered are subject to the terms and conditions of the contract and subject to the claims paying ability of the issuing insurance company. Also, annuity contracts are subject to fees, expenses and surrender charges.
Learn if an annuity is right for you
When it comes to retirement planning, there’s no one-size-fits-all solution.
That said, annuities can act as important piece of the puzzle when it comes to developing a retirement income strategy capable of financing your unique vision for retirement.
Remember, bills don’t retire, and your steady source of income doesn’t have to, either. Learn more about how an annuity can provide steady income during retirement. For more information on annuities, or to discuss your specific financial plans in greater detail, contact a PNC Investments Financial Advisor, today.