There are various reasons why you need to purchase annuities, though it tends to depend on your lifestyle. An annuity can offer you a guaranteed income for life, protection against any losses in your initial investment, a way to take care of your loved ones, and assist with your long-term care costs.
There are some individuals who believe that an annuity is complicated, when it comes to making calculations. The good news is that you can use an annuity calculator to make things a bit easier. Remember that you can find a variety of annuities, so you need to choose the one that suits you. An annuity is also the best way you can save the money tax-deferred until the time you want to receive retirement income. This article discusses why you should invest in annuities.
Income for life
Most annuities offer you a stream of guaranteed retirement income which you can be receiving for the rest of your life. Depending on the annuity contract, they can also give income to your spouse for life. This is called a joint and survivor annuity option.
There is also a lifetime payout annuity that offers payments that may be fixed or variable. A variable payment can change depending on an underlying investment portfolio’s performance. This type of an annuity comes with the risk of loss and the potential for more growth.
On the other hand, a fixed payment functions differently from a variable payment. With a fixed payment, the money is set in the annuity contract and doesn’t vary. If the financial markets are volatile or are falling, your monthly income is not affected, which gives you a sense of security.
Some studies have indicated that many retirees who have guaranteed income are usually happier than people without it. After all, the idea that you can lose your resources, lifestyle, and money is terrifying. Annuities that offer a regular income can allow you to live a dignified life through retirement as well as a guaranteed lifestyle.
Purchasing an annuity is especially crucial at this time when pensions that have dependable income are now becoming less common. In most cases, it can be hard for you to manage or handle a lump sum of money, so you need to spend only enough without the cash running out.
The promise of having income for the rest of your life can also be an assurance that you cannot outlive your investment. With a life annuity, regardless of how long you live on this earth, you can still continue to get this stream of income. Remember that even after you collect the entire premium and all expected earnings, the income still continues to come. The truth is that you cannot find any other investment that offers this.
Legacy
You can decide to invest in death benefit riders that allow you to pass on the annuity to one or even more beneficiaries once you pass away. But the way this works tends to depend on how you word the annuity contract.
The annuity contract can offer a minimum number of payments to the beneficiaries. It can also stipulate the rest of the principal that needs to be passed on to the beneficiaries. Funds can be provided as a lump sum or even a stream of payments.
When it comes to joint and survivor annuities, your spouse may take ownership of your annuity when you pass away, and it has the same terms and conditions that applied to your payments. You need to include beneficiaries in your annuity contract so that you can protect them from going through a probate process. It’s worth noting that probate refers to the legal process of splitting an estate of a deceased person and following a will. It can often involve a lot of time and costs to go through the probate process.
Besides your spouse, it can be a more complicated process to designate a beneficiary with a life annuity. One of the options is having a life with period certain annuity. This annuity contract can make payments for a minimum period like 10 years. The other payments then are made for your entire life. Therefore, if you pass away before the expiry of the period certain, then your beneficiary may receive the money for that remaining period.
Long-term care
Another option is a long-term care rider that you can find in most annuity contracts. This offers a certain level of insurance when it comes to expenses associated with long-term care. For example, a person who is 65 years old has almost a 70 percent chance that they may need some form of long-term care services during their remaining years.
You should note that a long-term care annuity doesn’t pay the whole cost of care or offer the same level of reimbursements that traditional long-term care insurance provides. But it is usually less expensive than an insurance policy, which can cost a reasonable amount of money each year.
And, a long-term care annuity rider has become quite popular nowadays than a traditional long-term care insurance policy. Today, there is a chance that the numbers of annuities that have long-term care riders are more than long-term care insurance policies. These riders can often increase the annuity payout significantly for a specific period should you want long-term care. For instance, your rider can sometimes pay at least double your average income stream for about 5 years.
Alternatively, you can choose an annuity contract that may allow you to make large withdrawals from the annuity principal when you need long-term care. An annuity that has a long-term care rider often has less strict medical underwriting than a traditional long-term care insurance policy. If you cannot live independently, then you can still access the annuity to receive an income regardless of whether or not you need long-term care.
In conclusion, it makes sense to have an annuity for the benefit of you and your loved ones. You can have the chance of receiving a steady income and your loved ones can also be cared for when you pass away. Before you decide to buy an annuity, you need to consult your financial adviser for guidance because annuities tend to vary.
