3 Uses for Annuities that Have Nothing to Do with Retirement Income

A lot of people say a lot of things about annuities and what they can and cannot do, and it can sometimes be hard to figure out what these salespeople are really talking about. Guaranteed benefit rider? Point-to-point? Claims paying ability?

As you enter into the deep water of retirement, investment decisions have to be made. If peace of mind is what you seek, it might be hard to figure out whether or not an annuity is what you need, especially if you don’t require immediate income. Here are three uses for annuities not often talked about that can help keep your savings growing along swimmingly.

#1 Protection from Market Volatility

There are basically two types of annuities: immediate and deferred. An immediate annuity can be a simple and cost-effective source of retirement income, but if you don’t need your income right away and are concerned about keeping this money secure, then a deferred annuity might be the perfect place to park your funds until you need them.

A deferred annuity has a growth phase which can last for a period of several years, during which time you contribute money to the account and watch it accumulate. The money grows tax-deferred just like the investments in an IRA or 401(k), and depending on which kind of annuity you chose, this money can also be shielded from market loss. You may still participate in market gains linked to an index, but the base amount you put into the annuity typically won’t see a reduction due to volatility.

#2 Estate Planning Tool to Help You Grow More Money for Your Family

You might also elect to purchase a rider with your annuity. A rider is an add-on feature or benefit that can help accelerate the growth of your deferred annuity by giving you a guaranteed rate of return. It’s important, however, that you understand two things about the function of a rider:

  1. You may not be able to access the money that is growing in the accelerated account.
  2. Even with the addition of a rider, not all deferred annuities offer true principal protection.

These caveats can be a bit tricky to figure out. The independent regulatory authority FINRA warns investors against the substantial charges and restrictive feature of deferred variable annuities. A fixed indexed annuity with a death benefit rider, however, can grow your money at an accelerated rate without exposure to market loss. This can be an attractive way to build a substantial death benefit for your spouse or family members, and it may even be funded with the money you have to withdraw anyway from your IRA.

#3 A Way to Leverage Your Money for Long-term Care

Second only to the fear of running out of money is the high cost of healthcare during the later stages of life. To help prepare for this, many insurance companies offer traditional long-term care insurance. These policies can be expensive and difficult to qualify for; furthermore, if you never need long-term care, then all the money paid into the policy stays with the insurance company instead of going to your family.

One solution to this may be a long-term care annuity that combines estate planning and income features of your typical deferred annuity, but with the bonus of long-term care protection. How it works: a long-term care rider is purchased to increase your benefits by a specified percentage. Some hybrid long-term care and annuity plans offer you an immediate coverage that leverages every dollar you put in by giving you two or three dollars’ worth of coverage; other annuities offer long-term care benefits that may start at age 85. In most cases, any remaining funds not used may be transferred to your family in the event that the long-term care is never needed.

Deciding whether or not an annuity should be part of your retirement plan can be a complicated decision, but you don’t have to make it alone. Our annuity experts are waiting to assist you with any questions you might have. Reach out to us today or fill out our simple form to find out if an annuity can help keep you afloat during today’s retirement.

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