As you look ahead to your retirement years, your vision may be evolving as you consider what you’d like to do with your time and how you’ll make that happen financially. One thing you can do to feel more prepared for the future is design a plan that will help you build assets for retirement and provide a steady stream of income once you retire. Because it’s impossible to predict how the markets will react to economic and political events, it’s hard to know what you should to do build and protect the assets you’ll need in the future. An annuity may be an option to consider.
That’s because, depending on the type of annuity you choose, it can:
- Provide consistent payments that last as long as you live. By purchasing an annuity with a portion of your retirement assets, early in your career, you can give your money the chance to grow and accumulate — potentially with protection from some or all market downturns. Then when you’re ready to take income, you can generate reliable income you can use to cover some of your essential expenses in retirement — like mortgage, insurance and utility costs.
- Help your money grow faster. The money you invest in an annuity can grow tax-deferred depending on the type of annuity purchased, meaning you won’t pay taxes on any earnings or gains until you withdraw it. Because all your money stays invested, it has the potential to grow faster than other taxable investments.
- Adapt as your needs change. Some annuities provide a wide range of investment options from which you can choose. With the help of your financial professional, you can design an asset allocation strategy that will provide you with a diversified mix of assets to help meet your needs and risk tolerance. However, if your needs or risk tolerance change over time, you can move your money to different investments within the annuity — usually free of trade charges.
- Protect your portfolio from market downturns. Some annuities provide downside protection along with the opportunity for growth through benefit riders. While you can’t stop market volatility from happening, having some downside protection can help smooth out the fluctuations in your portfolio, and can help you stay invested and confident in your plan.
Different types of annuities
There are two main types of annuities: immediate and deferred. With an immediate annuity, you put money in and immediately begin getting payments. With deferred annuities, you are deferring, or putting off, the income payments so the money you invest has time to grow and compound over time.
Annuities can also be either fixed, indexed or variable.
- Fixed annuities pay guaranteed rates of interest, so you know exactly how much your money will earn over time.
- Indexed annuities1 track the performance of one or more major market indices, such as the S&P 500® Index. You don’t actually invest in the index, but your money will grow or decline based on what happens with that index. Some of these annuities will cap your growth in return for protecting your money from some or all of market declines.
- Variable annuities1 let you choose from a variety of investment options, similar to mutual funds. Your portfolio’s performance is then based on the performance of those investments.2
Talk to a financial professional
Though they can provide a simple and effective option to grow and protect your money, annuities aren’t for everyone. Talk to a financial professional to understand the benefits of an annuity and to discover if one might be right for you.
Related: Formula for a Secure Retirement