Annuities are used for retirement as a source of regular income. Your annuity is tax deferred until you take out payments. The contributions you put into an annuity are not taxed, and the earnings are taxed at your tax rate during retirement. Therefore, they can be a tax favorable way of earning supplemental income during retirement.
If you take out an immediate annuity, you contribute a lump sum and can begin to take out regular payments nearly immediately. A deferred annuity allows you to make payments into it over a number of years, then annuitize the annuity to receive regular payments. These payments are generally used to add to Social Security benefits and other income during retirement.
Variable annuities make your annuity more of an investment, with the risks that come with variable products.
Indexed annuities also allow for more growth but protect the original contribution.
That is an excellent question! One of the biggest fears of retirement is running out of money. What happens if I live longer than my retirement fund will last? This is a very real problem, as Americans are living longer, (On average, 15 years after retiring) on small retirement funds ( average 3 years worth). Social Security benefits are not enough, and long term health care costs evaporate what little funds there were very quickly. Annuities are a great way to provide a steady monthly income, or to help with long term care costs. Your annuity will pay out a steady payment to you, and many now have provisions for doubling or even tripling that payment for a period of time to help pay for those LTC costs. Annuities are not the best investment for everyone because of the way they are structured, so it is important that you discuss this with an advisor that you trust, okay? Thanks for asking!
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
An annuity addresses the most pressing question among retirees, “How long will my savings last?” In exchange for a sum of money the company will guarantee a monthly income for as long as the annuitant (or the annuitant and another party) survive. There are modifications of this basic idea designed to fit specific needs.
Agent Owner, Gilmore Insurance Services, Marysville, Washington State
How can annuities be used for retirement? Well a couple of ways. First, annuities can be used for payouts. You cannot outlive an annuity payout stream. An immediate annuity can provide a safe income stream while retired. Second, you can use a deferred annuity to safely continue to invest and grow funds to use at a later date.
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If you take out an immediate annuity, you contribute a lump sum and can begin to take out regular payments nearly immediately. A deferred annuity allows you to make payments into it over a number of years, then annuitize the annuity to receive regular payments. These payments are generally used to add to Social Security benefits and other income during retirement.
Variable annuities make your annuity more of an investment, with the risks that come with variable products.
Indexed annuities also allow for more growth but protect the original contribution.