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Annuities –
A Retirement Income Component
What is an Annuity?
An annuity is a contract between you and an insurance company. In exchange for a current premium, your insurer agrees to pay you a future stream of income. All annuities are designed to provide either a Fixed or guaranteed rate of income (think CD’s) or a Variable rate of income (think stocks). Each type (fixed or variable) can have potential benefits to an individual investment plan. There are numerous variations available. Annuities are complex due to these variations. You should not acquire one unless you completely understand the terms and conditions of the particular annuity being considered.
One type of fixed annuity is an Immediate Annuity. An immediate annuity is designed to provide a guaranteed stream of income that usually starts as soon as you establish the arrangement. The stream of income is level and lasts as long as an individual desires (i.e. it can be for life). We believe this type of annuity can provide a certain type of benefit to individuals in retirement.
Why consider an Immediate Annuity?
Many Americans who have recently retired or will do so will not have a company pension plan to provide them a consistent and guaranteed payment of benefits like their parents received. Yes, social security does address that to a degree, but it’s typically not near enough.
It’s common knowledge that the average life expectancy for a sixty year old is well into eighties. Honestly, it’s not unusual anymore to know individuals who are ninety. Our practice has numerous clients who are into their 90’s!
We believe that an individual can find benefit by allocating a portion of their investment assets to immediate annuities. This allocation (i.e. 10%+) provides an individual a guaranteed stream of income. This guarantee allows an individual to then allocate other portions of their investment assets to long term positions with potential for appreciation.
Each financial planning client case that concentrates on retirement income planning should consider this tool.
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