Annuities can play different roles in a retirement plan, but understanding how they work in real-life situations can make the concept easier to understand.
Creating Lifetime Income
One reason retirees consider annuities is the possibility of creating a stream of income designed to last for life. Depending on the contract and options selected, a lifetime income feature can help address the concern of outliving retirement savings.
Seeking More Predictable Growth
Fixed annuities are designed around contractually specified interest terms. They aren't directly tied to daily stock-market performance in the same way as investments such as stocks or mutual funds.
Understanding Indexed Annuities
With an indexed annuity, interest credited to the contract may be linked in part to the performance of a market index. However, features such as caps, participation rates, and spreads can affect how much interest is actually credited.
The index's return is not necessarily the same as the return credited to the annuity.
Knowing the Withdrawal Rules
Before purchasing an annuity, it's important to understand how and when you can access your money. Some contracts have surrender periods and surrender charges, while others have specific withdrawal provisions or limitations.
Planning for Beneficiaries
If leaving assets to family is part of your retirement plan, review the contract's death benefit provisions and beneficiary rules. These can vary depending on the annuity and options selected.
The Details Matter
There isn't one type of annuity that works the same way for everyone. Contracts can differ in fees, interest-crediting methods, income benefits, withdrawal provisions, surrender charges, and death benefits.The key is understanding what a particular annuity is designed to do, what it costs, and how its provisions fit into your overall retirement strategy.
This information is for educational purposes only and is not financial, tax, or legal advice. Annuity guarantees are backed by the claims-paying ability of the issuing insurance company.
