By: One World Publishing
The economy’s mixed outlook of higher inflation and higher interest rates have had many retirement investors concerned. As a result, many Americans are seeking stability in their financial strategy by turning to annuities. Annuities can provide predictable income in retirement and may help investors opt out of some of the interest-rate-driven volatility of the last few years.
In 2022, annuity sales hit $310.6 billion, which marked a record high and a 17% increase compared to the previous record, which was set in the Great Recession of 2008. Here’s a closer look at what annuities are, why they are attracting investors, and whether this investment tool is right for you.
What Are Annuities?
An annuity is a tax-deferred insurance product designed to deliver steady income, particularly during retirement. As the policyholder, you’ll be responsible for paying premiums during an accumulation period. You can make lump sum or installment payments. After the accumulation period ends, you can receive monthly, quarterly, or annual payments.
Record-high inflation and concerns about the Federal Reserve’s long-term plans have led many investors to explore annuities as a safer alternative to traditional investment tools.
Why Annuities Are Attracting Investors and Retirees
Annuities offer several benefits during volatile economic times, including the following:
Potential Income Streams
Stocks are subject to market swings. Annuities are not. Annuities can provide you with a reliable income source via fixed payments based on the terms of your agreement. You’ll know how much your monthly, quarterly, or annual payouts will be based on your contributions during the accumulation period.
Ty J. Young, CEO of Ty J. Young Wealth Management, emphasizes the stability and value that annuities can bring to retirees. The firm is known for its expertise in annuities and other customizable financial tools. Additionally, Young and his team are committed to helping retirees achieve potential stability after they leave the workforce.
Tax Advantages
Deferred annuities allow funds to grow tax-free until withdrawal. This deferral means you may be able to grow your investment faster than a comparable taxable account. Of course, your individual results will vary depending on the rate of return.
No Contribution Limits
You can still contribute to deferred annuities even if you have already maxed out your employer-sponsored retirement accounts or individual retirement accounts (IRAs). Deferred annuities don’t impose annual contribution limits.
Customization Opportunities
You can customize your annuity to suit your specific investment or retirement goals. Each annuity program is unique, but some of the common features you’ll encounter may include the following:
- Long-term care support
- Cost of living adjustments
- Spousal survivorship clauses
- Death benefit policies
- Disability income
- Predictable minimum income
Take advantage of these different offerings to tailor your policy around your specific needs. For example, you could choose an annuity with a spousal survivorship clause to ensure your spouse continues to receive benefits if you pass before them.
Are Annuities Right for Everyone?
Annuities offer many advantages, but they also have some potential drawbacks that you should consider:
- Fees: They often come with higher fees compared to other investment products like mutual funds
- Surrender Charges: Withdrawing funds early can result in substantial surrender charges
- Reduced Liquidity: Annuities cannot be liquidated easily, meaning they aren’t a good fit if you need immediate access to your investment funds
There aren’t any one-size-fits-all investment tools. That’s why it’s important to consult with an experienced wealth management team to identify the combination of products that best aligns with your retirement or investment goals.
A Broader Look at Financial Management
Annuities can serve as a foundational part of your financial strategy. However, it’s important to consider your individual risk tolerance, income needs, and long-term objectives.
Disclaimer
The information provided in this article is for informational and entertainment purposes only and should not be considered financial, investment, or professional advice. Any financial strategies or products mentioned should be carefully evaluated with the guidance of a qualified financial advisor to determine their suitability for individual circumstances. Always prioritize safety and seek professional instruction when engaging in high-risk activities. The views expressed in this article do not necessarily represent the official stance of any organization or entity mentioned.
Published by Emma N.
