When it comes to taking advantage of the private wealth management tools at your disposal, things can get confusing, frustrating, and downright overwhelming to trying to chart the best course for your family’s financial future. One of the greatest tools at your disposal is a sound annuity and investment strategy.
What is an annuity anyway?
An annuity is an insurance product or contract between you and your insurer in which the insured (you) makes either a lump sum payment or a series of payments to their insurance company over the course of a fixed term.
In return, the insured will receive regular disbursements set to begin immediately or in the future. Annuities are a great option for those seeking to establish a steady source of income during retirement.
Choose the Right Annuity Plan
As an insurance product that pays out income, an annuity is a tool most commonly used as part of a retirement or investment strategy. This is especially true for those investors who want to make sure they have a steady income stream through their retirement.
How annuities work with your financial legacy and retirement
Although they can get surprisingly complex, the primary function of an annuity is pretty simple: you invest in the annuity by making a payment or several payments, and then your annuity makes payments to you as the insured at a predetermined future date or dates. When it comes to payout options, the income you get from your annuity can be scheduled out in monthly, quarterly, annually, or lump sum payments.
In addition to using annuities to help secure a steady income for yourself and your family during retirement, the money you invest in an annuity is tax-deferred and will remain so as it grows. When a payee begins to make a withdrawal on their annuity, the funds you contributed to the annuity are not taxed, but your earnings will be at your normal tax rate. Ultimately, one of the biggest advantages annuities offer is power to save larger amounts of money while deferring tax payment.
Further, because annuities don’t have an annual contribution limit like other tax-deferred retirement accounts like 401(k)s and IRAs, you get the flexibility to put money away for your retirement, especially if you started saving later in life and need to get back on track.
Lastly, because all of the money you invest in your annuity compounds every year without having to pay Uncle Sam a dime, every dollar you invest is always going to be working for you.
How much will I get from my annuity?
The flexibility of annuities means that individuals can choose to receive payments for the rest of their lives, or just for a certain number of years. When it comes to how much you get from your annuity, the size of your payments is determined by a host of different factors. So, make sure you talk to an experienced financial advisor about your annuity options.
For example, how much you receive from your annuity depends on whether you opt for a guaranteed payout, (which we call a “fixed annuity”) or a stream of payouts that are determined by the performance of the underlying investments in your annuity portfolio, called “variable annuities.”
Make sure to leverage investment opportunities with knowledge
While annuities can be useful tools for planning your retirement, all annuities were not made equal. There are predatory programs consumers need to be on the lookout for. While there are dozens of legitimate benefits for retirees when it comes to establishing an annuity, many programs contain expensive hidden costs than can do seniors more harm than good.
The best way to ensure you don’t fall victim to a predatory annuity contract is by working with private wealth management advisors who can teach you the skills and knowledge you need to protect your legacy.