It might seem counter intuitive, but retirees can find some peace of mind with their annuities in down markets such as we’ve had in recent months.
When the markets take a stomach-tightening dive, many investors head for the perceived safety of annuities. These insurance products offer the promise of guaranteed income, an attractive proposition for many retirees in a volatile market.
An annuity is a contract between you and an insurance company in which you make a lump-sum payment or series of payments and, in return, receive regular disbursements, beginning either immediately or at some point in the future.https://tpc.googlesyndication.com/safeframe/1-0-37/html/container.html
Points to keep in mind
- Annuities are insurance contracts that promise to pay you regular income either immediately or in the future.
- You can buy an annuity with a lump sum or a series of payments.
- Annuities come in three main varieties—fixed, variable, and indexed—each with its own level of risk and payout potential.
- The income you receive from an annuity is taxed at regular income tax rates, not long-term capital gains rates, which are usually lower.
Variable annuity sales rose 16% in the first quarter over the same period last year. Within that category, sales of registered indexed annuities grew by 44% over the first quarter of 2019.
“Whenever there is a significant drop in the market, annuity sales rise,” says Ben Lies, a financial planner in Vancouver, Wash. “People are scared. They want something that feels safe.”
To someone whose investment portfolio has been buffeted by a market downturn, the idea of worry-free monthly income for the rest of your life might sound pretty good. Even with its limitations, a simple annuity can be a good tool for people near or in retirement, with investment portfolios that might not return enough to continue paying their essential expenses.
It is always wise to review your financial plans and retirement in vestments on an annual basis. This review is even more important when markets are volatile. Contact your financial planning, investment, or life insurance specialist to determine the level of risk vs security would give you the most peace of mind.
(Source: Money.com)