Planning for retirement can be complicated. There are so many things to consider. Is a 401(k) the best bet? Should you get an IRA? Maybe you should invest in stocks and bonds?
One thing you might not have considered is an annuity. Annuities refer to insurance contracts issued by financial institutions. They work by paying out invested funds via a fixed income stream. To get an annuity, you would need to purchase one with either a monthly premium or lump-sum payment. You then receive an income stream on a regular basis for the rest of your life.
Many people turn to annuities so they can earn money in retirement and not worry about outliving their savings. However, not all are the same, so you need to do some research and find the best one for your goals. Interested in using an annuity for estate planning? Here are some to consider.
Equity-indexed annuities offer 1% to 3% of interest on 87.5% of your investment. The amount of interest you will earn is linked to how well an external equities index performs. These annuities usually offer a higher earnings rate than traditional fixed-rate annuities but are lower than variable-rate annuities. However, there is better protection in the event of a market downturn.
Deferred fixed annuities offer a guaranteed interest rate over a specific period of time. They have a guaranteed minimum rate of return, allowing your money to grow over time. You will not have to pay taxes on your earnings until you convert them into a steady stream of predictable income. The interest rates for deferred annuity interest rates are usually much higher than CDs and other low-risk investment options.
In exchange for a lump-sum payment, the provider pays you consistent income for either a specific term or the rest of your life. Your payments are based on a fixed interest rate so there is no market risk involved. You can start receiving payments in as little as one year and you can receive a consistent income stream through retirement. Many immediate fixed annuities come with an automatic cost of living adjustment so your payments increase based on inflation.
A variable annuity is a tax-deferred way to invest your money into sub-accounts. You get lifetime income as well as the ability to earn high profits, but it depends on market performance. A variable annuity is a great option for someone who has maxed out all their retirement plans.
Fortunately, variable annuities come with a death benefit so that your beneficiaries are guaranteed income, as well. Also, some protect against longevity risk and market risk, which is great if you are close to retirement.
There are many ways to save up for retirement, and annuities are one of them. However, not all will yield profits, so invest carefully.
Contact Orlowsky & Wilson, Ltd. today. Our estate planning lawyers in Illinois can help you plan for retirement and beyond. To schedule a consultation, fill out the online form or call our office at (847) 325-5559.
