As you look at your overall retirement plan, the usual fund options, such as IRAs and employer-sponsored plans (e.g., 401(k)s) are all good options for investing in your retirement. However, you may have a need for which you’d like to save more or would like another way to bring in more tax-deferred income on a regular basis, after you retire. An annuity may be a good investment to look into.
Choose the Right Type of Annuity
If you think that an annuity is right for you, your next step is to decide which type of annuity. Overwhelmed by all of the annuity products on the market today? Don't be. In fact, most annuities fit into a small handful of categories. Your choices basically revolve around two key questions.
Question 1: How soon would you like annuity payments to begin?
That probably depends on how close you are to retiring. If you're near retirement or already retired, an immediate annuity may be your best bet. This type of annuity starts making payments to you shortly after you buy the annuity, typically within a year or less. But what if you're younger, and retirement is still a long-term goal? Then you're probably better off with a deferred annuity. As the name suggests, this type of annuity lets you postpone payments until a later time, even if that's many years down the road.
Question 2: How would you like your money invested?
With a fixed annuity, the annuity issuer determines an interest rate to credit to your investment account. An immediate fixed annuity guarantees a particular rate, and your payment amount never varies. A deferred fixed annuity guarantees your rate for a certain number of years; your rate then fluctuates from year to year as market interest rates change. A variable annuity, whether immediate or deferred, gives you more control and the chance to earn a better rate of return (although with a greater potential for gain comes a greater potential for loss of principal). You select your own investments from the subaccounts that the annuity issuer offers. Your payment amount will vary based on how your investments perform.
Note: Variable annuities are long-term investments suitable for retirement funding and are subject to market fluctuations and investment risk including the possibility of loss of principal. Variable annuities contain fees and charges including, but not limited to mortality and expense risk charges, sales and surrender (early withdrawal) charges, administrative fees and charges for optional benefits and riders.
Variable annuities are sold by prospectus. You should consider the investment objectives, risk, charges and expenses carefully before investing. The prospectus, which contains this and other information about the variable annuity, can be obtained from the insurance company issuing the variable annuity or from your financial professional. You should read the prospectus carefully before you invest.
Look at Your Options
Once you’ve decided to go with the right annuity for you, you’ll want to do some research. In the end, this can possibly save you hundreds of dollars a year. Why? Costs and rates of return can vary widely between different annuities. Also, look for a reliable, financially sound annuity issuer. There are firms that make a business of rating insurance companies based on their financial strength, investment performance, and other factors. Consider checking out these ratings.
Choosing an annuity as part of your retirement plan may be the right decision for you as you’re working toward achieving your financial goals. Contact a Farm Bureau agent/advisor today to talk about our annuity options.
From materials prepared by Broadridge Investor Communication Solutions, Inc.