Between now and 2029, more than 10,000 baby boomers will retire each day; yet, a large portion of them consider themselves unprepared for life after work.
When planning for retirement, most people focus on accumulating money through investments, savings and retirement programs. As actual retirement nears, the emphasis needs to shift to creating a stable income stream. Unfortunately, most have no idea how to make that transition.
Annuities are a simple, effective way to provide an income stream during retirement. They have existed for hundreds of years.
Today, major insurance carriers offer annuities with features our ancestors never imagined. Most importantly, they can help retirees have the security and peace of mind.
Contracts and riders
Most annuity contracts are fairly simple. You put in money either in payments or as a lump sum. After a specified term, the contract issues payment to you on a monthly or annual basis. The primary differences among annuity contracts are the types of riders available. A rider is an addendum or feature allowing you to customize the contract.
Joint or individual
Annuity payouts are usually based on the life of an individual or of a couple. An individual policy ends when the insured person dies. A joint policy provides lifetime benefits for a couple. So the payouts continue until the death of both people insured by the contract.
Fixed annuities pay a guaranteed rate of return and usually guarantee against any loss of principal. Variable annuities offer the option of participating in the stock market with the possibility of a higher return, but there is also a possibility of loss. Indexed annuities base their returns on the performance of an underlying index — frequently the S&P 500. They usually guarantee against any loss of principal.
Minimum or guaranteed income riders
Originally introduced in 2003, income riders have become must-have features for more than half of annuity buyers, according to allthingsannuity.com. In an article for marketwatch.com, Stan Haithcock explained income riders eliminate “longevity risk by providing a lifetime income stream. Income riders typically have a guaranteed growth rate that can be used for income, and can be flexible from a planning standpoint.”
In other words, these riders provide an income stream that is guaranteed for the life of the insured.
Most annuities will return any remaining contract value to a designated beneficiary, but some annuities offer additional death benefit riders. Some promise the full amount of the initial premium, less any withdrawals or fees. Still, others offer various increased death benefits from a stepped-up benefit based on the highest annuity value to a guaranteed death benefit that is double the initial premium.
Today’s annuities offer more flexibility than any other time in history. Anyone preparing for retirement should give them a close look and discuss a real strategy for portfolio stability and growth.
Jeff Junior – President, Trajan Wealth
Jeff Junior has spent nearly two decades in the financial services profession helping individuals and couples in or nearing retirement better understand and prepare for the challenges associated with the ever-changing financial landscape. He holds his Series 65 and Life & Health licenses, and has a proven track record of helping clients successfully align assets with objectives to leverage and manage investment portfolios that will weather market fluctuations. A well-known speaker in the greater Phoenix area and an active member of the National Association of Insurance and Financial Advisors (NAIFA), Jeff frequently hosts public educational workshops in the community on a variety of financial and retirement topics