Having a company pension plan that provides guaranteed income for life could certainly relieve many financial worries, especially in retirement.
However, many Americans don’t have access to company pension plans, and those who do often have a plan that doesn’t provide a guaranteed income stream.
As part of an overall income generating strategy, annuities can be an ideal solution for taking your retirement savings and turning it into a dependable income stream for your retirement.
So let’s take a closer look at annuities, which can also provide you with income for life.
In exchange for a single lump sum deposit, a financial institution makes guaranteed regular income payments to you that contain both interest and a return of principle.
Annuity payments can continue for a chosen period of time or for the lifetime of one or two people.
While some income generating investments like mutual funds can be depleted over time, life annuities provide retirement income that’s guaranteed for life no matter how long you live.
The amount of income provided by an annuity is determined at the time of purchase and will depend on a number of factors such as;
- the amount of money you deposit,
- current interest rates,
- whether or not you want your payment amount indexed to help keep up with inflation,
- the sex and age of each spouse,
- and the number of years you want to guarantee income payments in case of premature death.
If you die prematurely, there are options available to you to ensure that your annuity investment isn’t lost.
For example, various guarantee options can ensure a specific amount of income is paid from your annuity investment to you, or your named beneficiaries.
Some types of annuities have tax advantages as well.
Since annuity payments consist of principle and interest, only the interest portion is taxable.
Prescribed annuities evenly spread the taxable interest over the life of the annuity, thereby offering some tax deferral.
Regular annuities must report taxable income as it is earned, which is higher in the early years and lower when the principle is reduced.
If you are looking for ways to earn guaranteed income for as long as you live, then speak with an advisor about how life annuities can play a role in your overall financial plan.