Investors have a love-hate relationship with annuities.
1. Annuities offer guaranteed income
I often meet with people who have no guaranteed income for retirement other than their Social Security benefits. They might have other savings, but it’s in the stock market or other investments with some risk.
So, let’s say a couple comes in with living expenses of $4,000 a month, and their Social Security checks will cover only $2,000 of that. Neither spouse has a pension, and they need and want another income stream guaranteed to pay out the remaining $2,000 every month.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
That’s where an annuity comes in. By positioning a portion of their savings into an annuity, they can potentially generate the extra $2,000 a month and bridge that income gap. Once that need is covered, they may be able to take some risk with the rest of the money in their portfolio — or they can use it any way they please through the years, for whatever need comes up.
If the same couple came in with plenty of fixed income — Social Security and a pension … and a desire to keep the rest in the market — we wouldn’t necessarily recommend an annuity, because they wouldn’t need it. But in this case, it serves a purpose, and they don’t have to worry that the ups and downs of the market will upend their lifestyle in retirement.
2. Annuities offer protection
Sometimes we have clients who have the guaranteed income they need, but they still don’t want their money in the stock market. They prefer to focus on preservation over accumulation, and they don’t want to take a risk with any part of their nest egg. They just want to put the money in a safe place where it can grow at a reasonable rate.
We often find a fixed indexed annuity is right under these circumstances. It’s designed to grow safely, and may earn anywhere from 3% to 6%. The purpose behind the purchase is a little different. It’s designed to help keep your money protected. But again, an annuity is a viable retirement planning vehicle.
Annuities can offer the protection and income many people need. You can’t lose your principal, and you’ll have guaranteed income coming from it. What’s not to like about that?
Kim Franke-Folstad contributed to this article.
Annuities are insurance contracts designed for retirement or other long-term needs. They provide guarantees of principal and credited interest, subject to surrender charges. Annuity guarantees and protections are backed by the financial strength and claims paying ability of the issuing insurer. The article is for general information only and is not intended to provide advice or recommendations for any individual. We suggest that you consult your accountant, tax, or legal adviser with regard to your individual situation.
Cornerstone Wealth Management offers securities through Kalos Capital, Inc. and investment advisory services through Kalos Management, Inc., both at 11525 Park Woods Circle, Alpharetta, Georgia 30005, (678) 356-1100. Cornerstone Wealth Management is not an affiliate or subsidiary of Kalos Capita, Inc. or Kalos Management Inc.
-
States That Won't Tax Your Retirement Income in 2025Retirement Taxes Several states don’t tax Social Security benefits, 401(k)s, IRAs, and pensions. But you may still have to pay state taxes on some incomes.
-
Build Your Dream Retirement With These Five StepsDreaming about life after work? Turn your dreams into a concrete, actionable plan by nailing down the why, what and how of your retirement.
-
Build Your Dream Retirement With These Five Steps
Dreaming about life after work? Turn your dreams into a concrete, actionable plan by nailing down the why, what and how of your retirement.
-
For Investors, 2024 Was a Year to RememberA perfect storm of favorable conditions created a rewarding landscape for investors. A buzz of cautious optimism continues for 2025.
-
Here's How Retirement Changes Your TaxesHow you approach taxes in your golden years and in the years before retirement can dramatically impact how much you pay.
-
If Not Long-Term Care Insurance, Then What?If you don't buy long-term care insurance, how can you plan to cover your long-term care needs once they (most likely inevitably) arise?
-
What to Consider Before You Invest in AlternativesA new economic paradigm points to the advantages of adding alternative investments to your portfolio for diversification and possibly higher returns.
-
Three Key Questions for Small-Business Owners in 2025Now is a great time to consider how best to position your small business for another successful year.
-
How Does Car Insurance Work for Ride-Sharing Drivers?Can you use your personal auto insurance? Does it cover everything or only certain things? Here's how to find out.
-
Post-Disaster Financial Planning: How to Protect Your AssetsA financial adviser who knows all about surviving natural disasters recommends ways to mitigate long-term damage to your financial health after a disaster.
