Annuities are an investment that allow an investor to exchange their money for a guaranteed income for a determined perdiod of time (Term Certain Annuity) or for the rest of their life (Life Annuity). Annuity incomes are tied directly to interest rates.
An annuity is a great tool for providing a guaranteed base of income for life when we retire, and is a sound solution to consider when we are retirement income planning. It allows investors the piece of mind to know they have a pre determined amount of income for the rest of their lives.
There are different forms of annuities and various features that apply to each of them. If the time comes that you decide to consider an annuity there will be a number of options you will need to review for consideration. Generally speaking, the more attractive the feature, the more it will reduce your income.
These options include the following;
Single or Joint Life - We can decide to purchase an annuity based only on our own lives (Single Life Annuity) or one that would pay a benefit for as long as you and your spouse is alive (Joint Life Annuity).
Level or reducing survivor income - We are able to choose an option at which the income for a surviving spouse can be level or reduced by 25%, 33%, or 50%.
Guaranteed Period - We are able to also choose a guaranteed income period in which if we passed away, the income would continue to be paid to a beneficiary. This guaranteed period can be five, ten or fifteen years.
It is not always easy to decide which options to choose when looking at annuities. It is very important to review the different guaranteed incomes and weigh the pro's and con's.
Here are some great questions to ask yourself taken from Daryl Diamonds - Your Retirement Income Blueprint include the following;
- What is the state of health of you and your spouse?
- What are the survivor needs of your spouse?
- Is your spouse also in a pension plan?
- What other income producing assets do you have?
- What is your timing like? Are you locking in long-term annuity rates at a time when interest rates are at historical lows?
- Is it your desire to generate some estate value from your pension?
- Do you have or could you acquire enough life insurance to replace all or part of your pension income?
To take a look at what Annuity Rates are like today click here
In recent years Insurance companies have created a highbrid product called the "Variable Annuity" where an investor is able to provide a guaranteed income, but have the ability to achieve a higher income based on the return of other chosen investments.
To learn more about variable annuities click here
To listen to a presentation by our dealership on variable annuities click here
