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have an annuity question?
have an annuity question?

3 Ways An Annuity Can Fit Into Your Retirement Plan

The first little pig built his house out of straw because it was the fast and easy thing to do. The second little pig put a little more thought into it and he used sticks. The third little pig went all out and built a house of bricks. When the big bad wolf came around and the huffing and puffing began, the only house that withstood the threat was the house of bricks. Your retirement nest egg is just as susceptible to the big bad wolf of stock market blows, not to mention inflation and the threat of longevity. Adding an annuity to your portfolio is like adding a bit of brick and mortar protection.

#1: AS A GUARANTEE

There are expensive ways and cheap ways to get an income during retirement, but if you want a happy retirement, then you’ll need a guaranteed way. Pensions used to be the way to get a guaranteed income, but many of them are failing or undergoing significant restructuring as companies struggle to meet their obligations during a time of increased longevity. There is another way: annuities. Not only do they have a long and distinguished history, they are guaranteed by the claims-paying ability of the insurance company. An annuity is a contract you purchase from an insurance company; the stronger the insurance company, the stronger the contract. If you need an immediate income, you may choose to rollover a lump-sum amount of money, or if you’re still saving, you can choose a deferred annuity (sometimes called a longevity annuity) to let your money grow for a while before you take the income. Whichever method you choose, income now or later, that income can be guaranteed for either your life or joint-life (if you are married and have a spouse you want to protect). Annuities can also guarantee that any money left in your account after your death will be paid out to your family and NOT to the insurance company.

#2: AS PROTECTION AGAINST VOLATILITY AND INFLATION

Volatility is the up-and-down movement of the stock market. Historically speaking, it can change by roughly 20 percent annually, or 5.8 percent higher or lower every month. During the financial crisis of 2008, we saw a drop of almost 50 percent from the top to the bottom. This drop represented the hopes and dreams of millions of retirees, and the number of seniors who are still working past age 75 has more than doubled since 1990. An annuity can give you a guaranteed income for life regardless of what is happening in the stock market. It can also ensure that your income isn’t diminished due to inflation. Fixed indexed annuities, for example, are specifically designed to keep up with the rate of inflation, and although they earn returns linked to the market, they don’t lose money to the market. The current rate of inflation is 3.22 percent. A 2016 study found that even a 3 percent inflation rate over a 20-year period on a monthly income of $1,341 can decline a retiree’s purchasing power by more than $117,000 throughout that 20-year period. Are you protected?

#3: AS A WAY TO DOUBLE YOUR MONEY

The rule of 72 is a simple way to estimate the number of years it will take to double your money given an annual rate of return. The rule states that you divide the rate, say 7 percent, into the number 72 in order to figure out how long it will take to double your money. 72 ÷ your compound annual interest rate = number of years it will take to double your money Deferred annuities, or longevity annuities sold with either a death benefit or income rider, may give you a guaranteed annual interest rate somewhere in the neighborhood of 7 or 8 percent. Using the rule of 72, we can see how it might easily double your money with no stock market risk and tax-deferred growth. 72 ÷ 7 + 10.3 years $500,000 + 10 years = $1 million If you’re looking for a simple, direct way to protect a portion of your retirement savings, look no further. TAKE STEPS NOW to protect what you’ve earned before the big bad wolf comes knocking on your door. If you have any questions, feel free to reach out to us and one of our financial experts will be more than happy to talk with you. As always, we’re here to help. Build Wealth Like A Millionaire Without Saving In A 401(K)

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