You know you need to plan ahead for retirement, including how you’ll get your income for the rest of your life, and who will receive the rest of it after you pass. But you may be unsure of whether you want to get an annuity, or invest in stocks or mutual funds. So, how do you know which option is right for you?
For important questions like these, it’s best to hear the answers straight from the pros, AKA independent insurance agents. Ask agents anything. They have the answers. Here’s the inside scoop on what they have to say about annuities vs. stocks and mutual funds, and how to decide which is the right choice for you.
Are Annuities Better than Stocks or Mutual Funds?
Well really, they’re just different. Annuities will work much better for some people, while stocks or mutual funds will benefit others. It just depends on what you’re looking for, and in order to help you decide, an independent insurance agent can fill you in on the pros and cons of each option. Before setting up a meeting, make a list of everything that’s important to you in retirement planning, including how you want to receive your income and when, etc.
What’s So Great about Annuities?
Annuities provide lots of freedom. You can put money into the annuity in a way that’s favorable to you, and also set it up so that you can take this money out later on in a way that’s also favorable to you. Also, you can set a date for the annuity to pay you and even set the terms for how much you put into the annuity and when. You could choose to contribute $100 per month. There are really endless options, and tons of flexibility.
You can design your annuity to be paid either in a single lump sum up front, or in a series of payments, depending on the type you get. Payouts can also be scheduled at specific times, such as if a child loses their parents. Additionally, after you pass, the designated beneficiary can remain on the same payment schedule you had set up, or they can change it. So, the flexibility even extends to beneficiaries.
What Are the Different Kinds of Annuities?
Your specific goals will influence which type of annuity works best for you. The main kinds of annuities available are:
- Immediate fixed annuities: With this option, you pay one lump sum up front, and later you get monthly, quarterly, or yearly payouts that continue for a certain number of years. Immediate fixed annuities are favored by those who are getting ready to retire and by retirees who want to guarantee a fixed income.
- Deferred fixed annuities: With this option, you can save money on a tax-deferred basis and benefit from this later on. Deferred fixed annuities are often preferred by folks who want to create a payout for themselves once they reach retirement. However, once you start getting payouts from your annuity, you’ll have to pay taxes on any earnings you’ve made.
- Variable annuities: This option allows you to make either a lump-sum payment up front or a series of payments over time. You can receive payments immediately or at a later date. The accumulation phase of a variable annuity involves you paying money into the account, and then getting several investment options such as money market funds, balanced funds, and international funds. Your eventual payouts will reflect the success (or failure) of the option you choose. It’s possible to end up with more or less money than you deposited during the payout phase, which can be made up of one lump sum or scheduled payments.
- Indexed annuities: This option is similar to variable annuities in that it allows you to make either one lump-sum payment up front or several payments over time. The difference is the payouts you receive are based on a fixed rate and an index, such as the Standard & Poor’s 500 stock index. The payments will increase if the index is higher than the rate, but if the index is lower, the payment will match the minimum guaranteed rate. A max or cap is usually placed on the indexed rate of increase.
If you’re unsure of what kind of annuity would best suit your needs, your independent insurance agent can help you decide.
What’s So Great about Stocks?
There are a couple of reasons why people may go for stocks over annuities. With stocks, you don’t have to cash in your stock holdings like you would with an annuity. These holdings can be transferred to a beneficiary. Also, you can sell your stocks at any time without facing penalties for early withdrawal. Stocks also benefit those who worry about their payout outpacing inflation in the future, which can make them a better option for long-term retirements in the end.
What’s So Great about Mutual Funds?
Mutual funds typically have much lower expenses than annuities. While expenses on annuities can exceed 2%, expenses on mutual funds are often well below 1%. Index funds can even be as low as 0.10%. Because of this, mutual funds have the capacity to allow for higher returns over time than annuities. Mutual funds in the form of traditional IRAs or Roth IRAs also have the ability to grow on a tax-deferred basis.
Are Any Other Important Retirement Investments Worth Considering?
Life insurance is another great option for retirement planning. If you want to have control over how your savings are distributed after you’re gone, life insurance is an easy way to set that up according to your wishes. Folks opt for life insurance for a number of reasons, including:
- Paying off outstanding debts: Life insurance helps to pay off remaining debts, such as mortgage loans, after the policyholder passes away. This benefit allows the deceased’s family to be freed from covering huge outstanding balances.
- Covering final expenses: Average costs for funerals and burials commonly surpass $10,000. Having life insurance coverage can prevent a policyholder’s family from having to pick up their final tab, so to speak.
- Providing for spouses and children: Life insurance allows a deceased family member to continue to provide for their spouse and children after they’ve passed away and can no longer contribute a normal income. Payouts from life insurance can be used to help the surviving spouse retire, for children’s college tuition, and more.
Your independent insurance agent can help you decide if life insurance would be the right choice for you and your family.
What Else Do I Need to Know about Annuities?
You can build in your own conditions with annuities. You can dedicate the funds to your spouse. You also have the power to decide how much of the funds they receive over a specific timeframe that you set. However, if you’re going to look into an annuity, you really need to work with someone who understands what you want and can hook you up with the best terms. That’s why working with an independent insurance agent is so important.
Here’s How an Independent Insurance Agent Would Help
When it comes to answering your important questions about annuities vs. stocks and mutual funds and everything else, no one’s better suited to help than an independent insurance agent. These agents search through multiple carriers to find providers who specialize in annuities and life insurance, deliver quotes from a number of different sources, and help you walk through them all to find the best blend of coverage and cost.
TrustedChoice.com Article | Reviewed by Paul Martin
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