Have you ever invested years or possibly decades gathering your retirement financial resources? Perhaps you diligently put part of your salary into a variable annuity, mutual funds, or stocks each and every month. Or maybe you assembled your retirement financial resources by increasing the equity in your home and now you're ready to scale down and cash out. Regardless of how you got to where you are today, you have most likely noticed the value of your investments fluctuate widely over the years. However it's time to think about how much financial risk you are prepared to take with your future.
Annuitizing your retirement financial resources is the equivalent of getting out of the game and cashing in your chips. Usually this means looking for a steady income and in return abandoning the possibility of hitting the jackpot in the future. However should you take the risk of losing a chance in exchange for a safe return? The best way to begin to answer that query would be to take a look at what is happening around you.
Individuals are living longer. The latest figures put out by the Centers for Disease Control state that a 65-year-old individual is expected to live 17.9 years. Fifty years ago that figure was 13.9 years. Thus the possibility of you outliving your financial savings is greater now than ever. And further medical improvements will only increase your chances of living a long, productive existence. Annuitization implies that your retirement financial resources will continue to pay you as long as you live. A fixed immediate annuity may provide a steady earnings which you can't outlive. (Guarantee is depending on the claims-paying ability of the annuity company. The purchase of an annuity might incur substantial fees and charges).
In addition, income from annuitization might possibly be taxed much more effectively and thus might enlarge the retirement financial resources accessible to spend when compared to other methods of producing revenue. It is because component in the proceeds from a direct annuity is regarded as a return of your first investment. Consequently, it's tax-free. The "exclusion ratio" is established by your age and the duration of the payout schedule you select. (IRAs as well as other retirement plans may not be eligible for the exclusion. Consult with your tax expert).
But you do not need to make an all-or-nothing choice about your retirement financial resources, whether to annuitize it or keep it much more traditionally invested. For many retirees, the very best option would be to allocate part of their retirement financial resources to a stationary supply of lifetime income in a retirement annuity and allow the other part to stay invested, say in a balanced portfolio of stocks and bonds. By having a number of your retirement financial resources spent for a lifetime income, it allows you to invest more proactively with the remainder rather than in 2% bank accounts.