Annuities Enjoy a Resurgence in Popularity

When your parents and grandparents retired, they might have depended upon a combination of company pension and Social Security. If they did have their own retirement savings, they only had to live off of that money for about a decade. Now that many of us can expect to live 25 or 30 years past our retirement dates (sometimes even longer), we are facing a unique challenge with regard to retirement income. We need to establish an income that will last as long as we do!

That’s one of the major reasons that annuities have enjoyed a resurgence in popularity. One lump-sum payment (or in some cases, a series of payments) can purchase a policy that pays out a stream of income for potentially the rest of your life. It’s a good solution for those who expect a long life span, or who don’t want to rely upon the stock market to perform well.

An annuity product can represent a more stable, less stressful way to establish retirement income. But because there are so many different types of annuities on the market, it’s important to understand the major differences between them. In general, you will face several decisions in your annuity shopping process, such as the ones outlined here.

Immediate or Deferred? This decision is exactly what it sounds like. Do you want your distributions to begin right now, or at a later date? An immediate annuity starts payments as soon as you make your lump sum payment. A deferred annuity starts distributions at a predetermined, later date. In exchange for waiting, you might be able to reap higher distributions.

Fixed Rate or Variable? These terms are also pretty straightforward. If you choose a fixed rate annuity, the rate of return is fixed for the life of the contract. A variable rate annuity can fluctuate according to the underlying investments, or interest rates in general. Think carefully about hedging against inflation when you choose fixed versus variable annuities.

Equity-Indexed Annuities. If you’re torn between fixed rate or variable rate annuities, you might appreciate this hybrid product. It combines a form of minimum payment with the potential for larger distributions if interest rates rise.

Of course, beyond these three decisions, you will face many more choices in the annuity selection process. Working alongside an expert is the best way to make this important choice. For more information on annuities, give us a call. We can address your questions and help you decide if an annuity product would be a good fit for your portfolio.