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How long do you plan to live? That might sound like a blunt question, but when you’re planning your retirement savings, it’s unavoidable.

Perhaps a better question is, “What is the average lifespan of your generation?” Then calculate your savings from there to give you a better idea of what you need.

Hopefully leading up to your retirement, you’ve been prudent and diligent enough to save enough to enjoy the relaxation of life without work. Yet, if you were a late saver in your working life, that’s okay too. Many options are available when planning what retirement looks like to you.

So ensure financial stability, many people opt for annuities to help them stretch out their savings for as long as possible. In this article, we will cover what annuities are, their different types, how they can help you, and tips for planning your retirement savings.

What Are Annuities?

Rather than drawing from a lump sum of their retirement funds, many prefer to receive a small amount in regular intervals, similar to obtaining an income from an employer. That way, there’s no temptation to overspend, budgeting is made much easier, and the money can continue streaming in for the rest of the retiree’s life.

The way annuities work is that the person or persons planning for retirement will sign a contract between themselves and an insurance company. They’ll pay into the annuity, which cannot be drawn from until a specified time (at least, not without penalties). Once that time is reached, the payouts begin.

There are several types of annuities:

Variable Annuities

Variable annuities are long-term and designed to allow individuals to make investments in the stock market. The plus/minus of this is that the value of these retirement savings is directly tied to market movement.

Immediate Annuities

Immediate annuities allow the retiree to transform a large sum of savings into a stream of fixed payments. Many times, they allow immediate access to funds and supplement other sources of retirement funds.

Fixed Deferred Annuities

These guarantee a premium payment as well as a fixed annual return rate. Usually looked at as a low-risk investment, fixed deferred annuities are helpful for longer-term goals.

Deferred Income Annuities

A deferred income annuity allows you to take the money you’re making right now and transform it into payments upon retirement (or at a time you specify). It is seen as a long-term retirement income option. However, if you need to take out money before the contractual date, you may face penalty charges.

Annuity Tips

If you’re currently preparing for your retirement and the idea of fixed, periodic payments is appealing to you, annuities may be your best option. Ty J. Young Wealth Management is one of the leading wealth advisory firms when it comes to annuity expertise. According to Ty Young, the firm’s founder and CEO, there are a few tips to consider before adding annuities to their portfolio.

  • Ensure That Annuities Are Right For You

The key to any financial investment is doing your research. Understand the terms of the annuity that you are considering, the fees, and any other requirements. It’s best to know your retirement goals first, how much income you’ll need and any liquidity requirements you have. An advisor can help you find the most suitable annuity.

  • Look for Assets that Can Pay into Your Annuity

You don’t have to rely solely on your net income to pay into your annuity. 401(k) plans and IRA money can often be used, and they will grow tax-deferred. You may also have assets you can sell to fund your annuity payments, such as land, vehicles, or valuable collectibles.

  • Understand The Fees

Do your research before you sign a contract. Some annuities may have fees that are higher than expected, or fees that are instituted if money is needed and taken out sooner than an agreed upon date. Fully understand the fee structure before committing and have an advisor who can walk you through the mechanics of it.

  • Name Heirs as Beneficiaries

With proper planning, your annuity payments will outlive you; however, this means that if you didn’t plan properly, your heirs would have to enter the probate process. An outcome like this can be avoided if you name your heirs as beneficiaries. If you choose an annuity with a death benefit, it will provide payments to your spouse and heirs.

  • You Can Pay as Much into Your Annuities as You Want

While some retirement savings accounts impose a cap on annual contributions, there is no such limit with annuities. Still, be aware that there may be a limit if your annuity is contained within a retirement account that does have such a cap.

Are Annuities Right for You?

Not everyone planning for retirement will feel the need to use annuities. They are of greatest help to those who have difficulty regulating their spending and fear they will outlive their savings.

Yet, with the many options available, it’s important to research and understand what option/s might be best for you and your household.

The best way to determine whether annuities are the way to retirement stability is to meet with a financial planner and discuss your specific needs.

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