Among the biggest worries of retirees is the worry of outliving their retirement benefits. To relieve this fear, some retirees turn to fixed annuities with life time payout choices, which may provide a regular stream of retirement money that's guaranteed for life.
S0me choose to purchase a fixed annuity with a lump-sum distribution from an employer sponsored retirement plan (e.g. pension plan or 401k plan). But you could also fund a fixed annuity with several deposits over time. In fact, in the event you have other financial goals, such as leaving a legacy to your heirs, normal payments into these kinds of annuities could help you to fulfill your desired bequests.
Here's the way it might work: a married couple that has just reached retirement age wants to draw sufficient retirement benefits from their retirement savings to supplement their Social Security income. Additionally they want to leave a considerable portion of their resources to their children and grandchildren upon their death. They could choose to live off of investment income and regular withdrawals from their retirement benefits for a number of years, after that, purchase a fixed immediate annuity with lifetime payout option at the last feasible moment. This strategy might offer sufficient revenue for your rest of their lives. Nevertheless, the couple might not have the assets they'd prefer to pass along to their beneficiaries.
Rather, the couple may decide to invest regularly and periodically into a fixed deferred annuity that will make lifetime payments later. Their retirement benefits needs can probably be met with 2 reliable sources - the annuity and Social Security. Additional retirement cash may be invested for long-term growth, to help create enough wealth to pass along to their children and grand-kids, or, the remaining assets could be utilized for other financial goals, such as purchasing life or long-term care insurance policies.
The annuity payments might begin instantly, or can be deferred until a certain day in the foreseeable future. An annuity that offers retirement benefits at a date later on is called a deferred annuity. With the immediate annuities, however, payments start soon after the premium payment is made. Cash flow payments from an immediate annuity can be higher than what is offered through a deferred annuity. However, the compromise is that the unpaid account balance is usually forfeited in case of a premature death. Your decision to purchase a deferred or immediate annuity will rely upon the time horizon for the retirement benefits (e.g. life expectancy), your anticipated income needs throughout retirement, and your liquidity needs.
Fixed annuities can provide the annuity owner with a predictable stream of retirement money to meet day to day expenditures. This stream of payments may last for a time period of years or can be paid out over a lifetime or even the joint-lifetimes of a husband and spouse. With fixed annuities, most companies also provide interest rate guarantees, which differ from company to company.
Fixed annuities are long-term investments designed for retirement purposes. Withdrawals are subject to income tax and, if taken prior to age 59½, a 10% federal tax penalty may apply. Early withdrawals might be subject to surrender costs. Annuity guarantees are backed by the claims-paying ability of the issuer.
While fixed annuities may not be for everyone, they are worth a look if you're looking for a dependable supply of retirement benefits that may last all through your retirement and lifetime.