The beauty of financial planning is that you have a wide range of tools at your disposal to build a portfolio that best fits your needs. The combinations are different for every individual and you never know which tools will benefit you most until you have a clear picture of your finances, which is what your advisor can help you with.
One of the products that often gets mixed reviews is the annuity. The perception of annuities isn’t always great, but that doesn’t mean they might not be perfect for you.
If you aren’t completely sure what an annuity is and how it’s used, let’s start with a quick overview. The goal for an annuity is to generate guaranteed income for a retiree, and that’s done by providing you with regular payments. There are a few different ways that this can be accomplished, but the basic types of annuities are fixed, variable, and fixed index. Choosing the right annuity will depend on how much risk you are comfortable with taking on.
The primary reason people choose to utilize an annuity is to create predictable income in retirement. Having an income plan is absolutely essential to retirement success and there are many ways to build that, one of which is through an annuity. Having that dependable income hitting your account each month creates confidence in your retirement.
This investment has also become more popular as pensions begin to dry up across the country. With fewer people receiving pension payments, they are looking for other ways to create that income and the annuity has filled that gap for many people.
It might be a strategy that also works for you, but you’ll want to sit down with an advisor to determine if that’s the case or not. As with all other investments, you’ll have to assess risk and return and figure out what will yield the best outcomes. It could be any of these different types, or it could be none of them at all.
This is just one of the tools we have at our disposal when it comes to building your plan. Remember that there are no bad tools and just because annuities might not always be widely-used doesn’t mean they won’t work for you.