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.
-
Georgia Could Be Latest State to Eliminate Income TaxesState Tax Eliminating the Georgia state income tax: Last-minute summer trend or permanent policy?
-
Biggest Winners and Losers in Trump's New Tax PlanTax Law Trump’s mega tax overhaul, known as the ‘One Big Beautiful Bill,’ has distinct winners and losers. Which group do you fall into?
-
Five Things to Consider Before Rolling Your 401(k) into a Roth IRAConverting at least some of an old 401(k) to a Roth IRA can offer long-term tax benefits and retirement flexibility, especially if you anticipate being in a higher tax bracket later or wish to leave a tax-free legacy.
-
From Dream Apartment to Nightmare: When Your Landlord Evicts You Through No Fault of Your OwnThis is what I suggested a tenant do to get out of her lease after her landlord's inexperience and lack of action made her rental situation unsafe. It's a legal situation called 'constructive eviction.'
-
Six Steps to Being Empowered and On Track: An Expert Financial Guide for WomenWhile most female investors feel on track with their financial goals and empowered by managing their investments, many regret not starting sooner. Here's how you can get started and take control of your financial future.
-
Selling Your Business? This Powerful Insurance Option Unlocks Multigenerational WealthPrivate placement life insurance (PPLI) offers almost unbelievable investment flexibility, estate planning and tax advantages. And it's completely legit.
-
How to Maximize Your Social Security Now That the One Big Beautiful Bill Is LawWhen applying for your Social Security benefits, consider the new enhanced deduction for people age 65 and older, as well as your health, family situation and other financial issues.
-
I'm a Retirement Specialist: This Is How to Keep Your 401(k) on Track Amid Dire News AlertsHistory shows that consistent, disciplined investing far outweighs any attempt at market timing, so focus on long-term growth and tune out the sky-is-falling news headlines.
-
Five Money Moves to Make Before Your First Child Arrives: A Financial GuideI wish I'd known some of these when I was an expectant parent. These important steps include establishing an emergency fund, budgeting for new expenses, securing life insurance and more.
-
Retirement Tax Bombs: How Roth Conversions May Cut the Blue WireIf you have a significant amount in tax-deferred retirement accounts, you could be sitting on a tax time bomb. Luckily, there's a way to defuse the situation.
