Many workers planning for retirement are turning to annuities to ensure a steady flow of income to supplement savings and Social Security benefits. Individuals should examine different types of annuities and payout options before making a decision.
Annuities allow an individual to make a lump-sum investment with the guarantee that the funds will be paid out in the future. Period-certain annuities ensure payment for a set number of years and allow a beneficiary to collect the remainder of the annuity in the event of the investor’s death.
Lifetime payments offer a fixed or variable payment option to investors, and the amount of the payout depends largely on interest rates and life expectancy. Investors who choose a fixed payout option may benefit more by investing in one annuity immediately, and investing in another when interest rates have increased, the Washington Post reports. Lifetime payments terminate upon the death of the investor and do not provide benefits to the investor’s survivors.
Variable annuities reached an all time high during the first quarter of 2012.”We believe the long-term horizon for the industry looks strong,” said Cathy Weatherford, President and CEO of Insured Retirement Institute. “The markets will always experience its ebbs and flows, but at the same time, we are seeing strength within the fixed annuity market as consumers are turning to income annuities as a source of lifetime income to attain financial security during retirement. The historic level of variable annuity net assets shows that insured retirement strategies are, more and more, becoming the savings vehicle of choice for many consumers.”
Annuities are a source of financial security to retirees and, in some cases, their survivors. Retirees may also consider purchasing a life insurance policy to protect their loved ones financially, as most annuities do not pay the remainder of the policyholder’s investment to beneficiaries.