This article is for informational purposes only and does not constitute investment advice. Investing involves risk, and readers should conduct their own research and due diligence before making any investment decisions.
As you get closer to retirement, it’s smart to move a significant portion of your savings from equities to principal-guaranteed products, such as bank certificates of deposit and fixed annuities. When there’s a significant downturn in the market, your retirement plan will remain intact.
“You won’t be forced to sell stocks or stock funds when the market is low,” says retirement-income expert Ken Nuss, CEO of AnnuityAdvantage, an online annuity marketplace.
Principal-guaranteed products include bank certificates of deposit, fixed-rate annuities, and income annuities.
Fixed-rate annuities often outperform CDs
Bank CDs pay a set rate for a fixed term and are backstopped by federal insurance. They are completely safe, but retirees and pre-retirees should consider an attractive alternative, the fixed-rate deferred annuity, he says.
This product, technically a multi-year guarantee annuity (MYGA), is sometimes called a CD-type annuity. It also pays a guaranteed rate of interest for a set term. However, it additionally offers tax deferral until you make receive income from it, and you can defer those payments indefinitely. Your money can grow faster free of federal and state taxes until you need it.
Rates have increased substantially in recent months, and today some fixed-rate annuities pay well over 5.00%. See this database of current MYGA annuity rates.
Issued by insurance companies, annuities aren’t federally insured like CDs, but life insurers have a solid track record of meeting their obligations, and state guaranty associations offer additional protection. Check the A.M. Best rating of the issuing insurer before you buy.
Create a private pension with a lifetime annuity
An income annuity offers a different approach. You turn over your money to an insurance company in exchange for a contract that pays a guaranteed income for your lifetime. An income annuity typically has no cash surrender value, but you’ve created a lifetime private pension.
Many independent experts say this is a deal worth taking. Whether interest rates rise or fall, stocks or bonds rise or fall, your payments will keep coming like clockwork, even if you live to 100 or beyond. This can help remove financial worries from retirement.
“An income annuity gives you longevity insurance,” Nuss says. Income payments include both taxable interest and tax-free return of principal.
A deferred income annuity pays a stream of income starting on a future date you choose. You typically pay a single premium for this contract. It is a straightforward, simple, and predictable product. You know exactly what your income will be starting on the date you’ve chosen.
You can buy either a single-life annuity or a joint-life annuity to cover both spouses. With the joint-life product, the surviving spouse will continue to receive the same income for life.
An immediate income annuity works the same way, with similar options, but income payments start between one month and one year after purchase. It’s a good solution if you need more income right after you retire. Some people buy one so they can retire early and plug an income gap before their Social Security benefits begin.
“If you’re willing to accept a varying interest rate in exchange for upside potential, consider a fixed-indexed annuity, Nuss says. It also guarantees every penny of your principal.
Interest rates are up. Guaranteed products now offer significantly higher payouts than they have for the last several years.
“It’s a good time to reallocate if you’re too heavily invested in the stock market,” Nuss says.
Annuity interest withdrawn before age 59½ is subject to a 10% IRS penalty. Most cash-value annuities allow penalty-free partial withdrawals, but there are penalties for making excessive withdrawals during the surrender term. Banks also charge penalties on early withdrawals from CDs.
Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. Ken is a nationally recognized annuity expert and widely published author. A free rate comparison service with interest rates from dozens of insurers is available at https://www.annuityadvantage.com or by calling (800) 239-0356.
Disclosure: This article is for informational purposes only and does not constitute investment advice. Investing involves risk, and readers should conduct their own research and due diligence before making any investment decisions.
Source: Story.KISSPR.com
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