Annuity for Retirement Income

Retirement planning, especially for the young, can seem daunting. But starting your planning early is the wisest course of action. An annuity is one tool that you can use to help plan for a secure retirement so you do not have to continue to work in order to eat. With the demise of pension plans, annuities may be our last great retirement strategy.

Begin Retirement Planning Early

Financial planning is an ever-changing game. Life can change radically over a few short years, so trying to plan for decades away can overwhelm many people or seem unnecessary. But if you are not prepared, you can find yourself at the end of your life with no money and no assets.

One method of planning for retirement years is by buying an annuity. These investment vehicles offer some peace of mind since they never run out. Unlike savings, you do not exhaust most annuities. This peace of mind frees up other parts of your portfolio for riskier, higher yielding, investments. If you find yourself frustrated by the caps on your IRA contributions, it is a great idea to enlist a financial professional to help you with your retirement planning, to consider all of your options.

Annuity-Bond Similarities

An annuity works very much like a bond. You pay in a certain amount of money and are then paid interest on that money for years to come. Most of the time, the tax on that interest is delayed until retirement. This can offer savings if you are not in the top income brackets, and your tax bracket likely will fall after retirement. Unlike a 401k, there is no limit to how much you can contribute to a retirement annuity.

One difference between an annuity and a bond is that you can contribute over years, depending on the type of annuity. That way, if you are not wealthy, you can still have an annuity for your retirement, but you don't have to buy it outright.

If you are nearing retirement, or already there, an annuity can begin paying you immediately. You'll be glad you planned ahead. This avoids the frustration that many people experience if they do not have the assets to take advantage of good retirement planning until it is too late to save for retirement. 

Other Considerations with Annuities

An annuity can also be used to shield your assets from estate taxes. There are annuities that will pay a death benefit in the form of a life insurance claim. This means that your heirs may not have to pay estate or income taxes on that part of your estate. This can represent a substantial tax savings. Check with a financial professional before using an annuity for estate planning. Check with an elder planning attorney before using an annuity for retirement if you expect to use Medicare. Medicare has its own complicated rules about annuities. You do not want to forfeit all your assets at the last minute to a nursing home.

A retirement of twenty or thirty years can drain your life savings. But an annuity can protect that savings by stretching it out over your retirement, no matter how long you live. Read the fine print carefully, then consider using annuities to make your retirement secure for the rest of your life. Just begin preparing now.