What You Need To Know About Annuities
Posted by Ocean Wealth
As we all know, retirement planning can be difficult. There are a number of ways to stay afloat during the golden years of your life, with some methods more common than others. With that in mind, one of the most underrated ways of maintaining a steady cash flow during retirement is through purchasing annuities.
The idea behind annuities is pretty simple. They’re financial products that pay out a fixed amount of payments to an individual. These are generally used as an additional income stream for retirees. Annuities are usually sold by life insurance companies that, upon depositing a lump sum of money, pay you a guaranteed income for a particular period of time or until you pass.
You might be thinking to yourself: Why doesn’t every retiree get annuities? They sound pretty great on paper, don’t they? Well, before we let you go out to get your annuities, there are some important things you need to know. That’s why we’re here to break down everything you need to know about annuities and how they can work for you.
Where to Find Annuities
Before we get into the nitty-gritty of how annuities actually work, it’s important to know where you can buy them. Funnily enough, they’re not that easy to get your hands on if you don’t know where to look.
While they’re technically still an investment product, annuities can only be sold by people with insurance licenses. That’s why the best place to seek them out is usually at an insurance company. Financial advisors might be able to help you navigate the complexities of an annuity, but they can’t actually sell you one unless they have a dual license.
There’s also the option of an independent annuity broker, but they’re even harder to come by. The other issue with buying an annuity through a broker like this is that you need to already have a good idea of the type of annuity you want to purchase.
When’s the Best Time to Buy Annuities?
Most experts agree that the best time to buy annuities is at age 70 and up. This will make it so the person selling you the annuity will have a shorter period of time to pay you. It basically means regular payments are higher the older you are. Life expectancy also plays a factor in this as the shorter your life expectancy is, the higher your payments may end up being.
That money you put into the annuity, with interest, will then come back to you as regular payments. It’s important to note that these regular payments are set once you purchase your annuity. They can come in monthly, quarterly, semi-annual, or annual payments, but once you choose — you can’t change the plan.
Common Types of Annuities
There are generally two types of annuities that most people buy: a term-certain annuity or a life annuity. We’ve already alluded to these throughout this post, but let’s break them down in a little more detail.
A term-certain annuity gives you regular payments for a fixed term of your choosing. That said, if you make a purchase of this kind of annuity with an RRSP or RRIF, then it’ll automatically extend to the age of 90. If you die before the term is up, your estate will receive the remainder of regular payments on that term.
A life annuity gives you regular payments for the duration of your life. Payments stop when you die and no money goes to an estate unless specified. If you buy this kind of annuity and still want your loved ones to receive payments after you pass, you have to include that in the contract prior to purchase.
Our trusted team of experienced financial advisors are here to help you with your retirement planning so you can determine whether or not annuities are right for you. Contact us today!