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.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free 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.
-
My First $1 Million: Retired In-House Corporate Lawyer, 74Ever wonder how someone who's made a million dollars or more did it? Kiplinger's My First $1 Million series uncovers the answers.
-
How to Give Your Kids Cash Gifts Without the IRS PaperworkMost people can gift large sums without paying tax or filing a return, especially by structuring gifts across two tax years or splitting gifts with a spouse.
-
'Boomer Candy' Investments Might Seem Sweet, But BewareProducts such as index annuities, structured notes and buffered ETFs might seem appealing, but sometimes they can rob you of flexibility and trap your capital.
-
I'm a Financial Planner for Millionaires: Here's How to Give Your Kids Cash Gifts Without Triggering IRS Paperwork
Most people can gift large sums without paying tax or filing a return, especially by structuring gifts across two tax years or splitting gifts with a spouse.
-
'Boomer Candy' Investments Might Seem Sweet, But They Can Have a Sour Aftertaste
Products such as index annuities, structured notes and buffered ETFs might seem appealing, but sometimes they can rob you of flexibility and trap your capital.
-
Quick Question: Are You Planning for a 20-Year Retirement or a 30-Year Retirement?You probably should be planning for a much longer retirement than you are. To avoid running out of retirement savings, you really need to make a plan.
-
Don't Get Caught by the Medicare Tax Torpedo: A Retirement Expert's Tips to Steer ClearBetter beware, because if you go even $1 over an important income threshold, your Medicare premiums could rise exponentially due to IRMAA surcharges.
-
I'm an Insurance Pro: Going Without Life Insurance Is Like Driving Without a Seat Belt Because You Don't Plan to CrashLife insurance is that boring-but-crucial thing you really need to get now so that your family doesn't have to launch a GoFundMe when you're gone.
-
I'm a Tax Attorney: These Are the Year-End Tax Moves You Can't Afford to MissDon't miss out on this prime time to maximize contributions to your retirement accounts, do Roth conversions and capture investment gains.
-
I'm an Investment Adviser: This Is the Tax Diversification Strategy You Need for Your Retirement IncomeSpreading savings across three "tax buckets" — pretax, Roth and taxable — can help give retirees the flexibility to control when and how much taxes they pay.
-
Could an Annuity Be Your Retirement Safety Net? 4 Key ConsiderationsMore people are considering annuities to achieve tax-deferred growth and guaranteed income, but deciding if they are right for you depends on these key factors.
