Are you approaching retirement? If so, have you lowered the risk you’re taking on in your investments yet? If you haven’t, 2023 probably stressed you out.
Last year we saw several factors affecting the financial health of retirees: inflation was a big one. The cost of food was up 3% and general expenses in “major categories” was up 4%.1
Plus, there were many times when the S&P 500 took a nose dive.2 For anyone planning to retire during one of those downturns, it was a very nerve-wracking time. A down market can wreak havoc on a financial plan if most of your assets are still riding that rollercoaster.
And hopefully you didn’t need to take out any debts recently because interest rates have been sky high.
All of these things are out of our control, but that’s where annuities might bring some peace of mind. An immediate annuity may help bring stability to your retirement plan. Here’s how. . .
What Is An Immediate Annuity?
An immediate annuity is a contract you make with an insurance company where you give them a lump sum and they pay it back to you over the course of a predetermined amount of time. It’s called “immediate” because the payouts from the insurance company typically begin soon after your initial investment.
When Does An Immediate Annuity Begin Making Payments?
It’s common for an immediate annuity to begin making payments within a year of purchase. It really just depends how you initially set up the contract.
Our co-founder Pete Benson explains immediate annuities in practical terms in this episode of Retirement Talk:
But you might wonder, “Why would I give someone else my money in order for them to send it back in smaller increments?”
Well, this type of annuity is not for everyone. Immediate annuities may be helpful for someone who needs to protect their principle from the ups and downs of the market and also wants to start drawing on their retirement funds soon. Immediate annuities might be one way to feel confident that your money will last as long as you do because the contract has been set up in a specific way.
How Does An Immediate Annuity Work?
When you set up an immediate annuity contract, you can choose the amount of the payment you receive each month – kind of like getting a steady paycheck. These payments can be fixed – meaning they’ll be the exact same amount every month – or they can be variable based on the performance of the underlying investments chosen in the contract.
The insurance company agrees to make these regular payments to you for a specific period of time. Of course, that amount of time is determined by several factors, including:
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- the lump sum of money you initially bring to the table
- whether you add benefits to the contract for your spouse
- if you want there to be payments left over for your surviving loved ones
These are just some of the options available to you when structuring your annuity contract.
There are other types of annuities as well, and while they can be helpful, they are quite complicated. You should never put your money into an investment you don’t understand. It’s important to work with an experienced financial advisor who can sit down and explain your options to you, face to face.
If you don’t have a financial advisor, or would like to get a complimentary second opinion of your current financial plan, get in touch with our firm. We specialize in covering the five areas of retirement planning: financial planning, wealth management, healthcare, taxes, and legacy. Whether your questions are in regards to immediate annuities or anything else in your retirement plan, you deserve the clarity and confidence. We’re here to help!
