What is a Retirement Annuity and Why Should You Consider It?

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When you plan for retirement, you typically have many options from which to choose. Some are more appealing than others.

For example, you may have heard of annuities, but you also might not know what they are, precisely, or why you ought to consider them as a tool to help you retire more comfortably.

No single blog entry can tell you whether a given retirement option is best. Do not mistake the information here for professional investment advice.

You need to consider many factors to determine how you ought to prepare for the future. It’s best to discuss this subject with a professional if you wish to understand why you may or may not want to take advantage of an annuity.

But this overview will offer a basic overview of annuities, along with some of the benefits they confer. Please read on to learn about them.

What is an Annuity?

A retirement annuity is an option for those who are worried they might outlive their savings during retirement. A 401(k) and similar options are certainly helpful, but after you cash in your 401(k), there’s a chance your savings could run out.

That becomes less of a concern if you have a retirement annuity. When you deposit funds into an annuity, you can be assured that once you retire, you will receive recurring payments.

Depending on the conditions, an annuity may payout for a fixed period of time, or for the remainder of your life.

You have multiple options when you decide to fund an annuity. You can arrange it with a single lump-sum payment or periodically pay into the annuity over time.

Neither option is inherently right for everyone. As always, you have to consider your personal situation and needs to help determine which option would be best for you.

The benefits of annuities include:

Addressing Aging Trends

Research consistently shows that human lifespans are increasing. A number of factors may contribute to this trend, for example, improved health care, greater access to wellness resources, and so on.

Most of us would regard the fact that we are living longer as a positive development. But this will have an impact on the degree to which certain kinds of retirement accounts will be adequate to provide much-needed assistance after we retire.

It’s entirely possible to outlive your savings. An annuity will offer some peace of mind if that’s a concern. 

Tax Benefits

You typically aren’t required to pay taxes on funds you’ve deposited into a retirement annuity until you begin to make withdrawals. So this provides an effective way to save without worrying about whether you may do it in a tax-efficient manner.

No Contribution Limits

This is one of the key benefits of annuities that distinguishes them from other types of retirement savings accounts. IRAs and 401(k)s have contribution limits.

That’s not the case with an annuity account. You can contribute as much as you wish, and thereby improve your chances of achieving full financial security after you retire.

This may make an annuity a particularly appealing choice to Americans with high incomes. If you aspire to enjoy the same standard of living after retirement that you enjoy right now, an annuity account may help you achieve this goal.

By no means is that meant to suggest that annuities are solely for individuals who make a lot of money today. You can earn virtually any income and still benefit from depositing funds into an annuity on a regular basis.

These are just a few of the reasons to consider an annuity as part of your retirement plans. But remember, these are vital decisions. You shouldn’t make them based solely on the information here.

This blog entry should merely serve to help you begin sorting through your options. Consult with an expert for more advice on this topic.