Retirement Annuities Can Be A Great Tool For Retirement Planning
Maybe you know someone, a friend or family member
, who was forced back to work after retirement by poor retirement planning or the recent economic collapse? It's unfortunate, but it can happen to anyone who doesn't properly plan for their retirement. You have many options available to you when planning your retirement, one of which is the option of a retirement annuity.
A retirement annuity works much like a typical insurance policy. With many insurance policies, you pay your premium for a specified amount of time, and once the insured event occurs the policy will pay out the benefit agreed in the contract. A retirement annuity works much like that, except instead of death or an injury, the insured event is the day you retire.
The benefit can depend upon a variety of factors including the length of time you pay the premium, how much you pay, as well as the amount of the down payment. Obviously, the more you pay in, the more it pays out. There's also the risk factor. Retirement annuities are available in general risk levels - none, moderate and high.
With no risk, the money you pay simply goes into an interest bearing account and the company's profit comes from the interest. Your benefit is what you paid in plus your share of the interest. Because of the limited risk, the gains aren't all that high and your benefit won't be much larger than what you pay in, though it will be higher. Also consider the fact that you could be paying into your annuity for a very long time, compared to the relatively short time the annuity will pay out; so the fact that you may not get much more back doesn't necessarily mean that it won't meet your needs.
Moderate risk annuities allow you to invest a part of your investment dollars and potentially make a higher return than a fixed or low risk annuity. Part of your money is stored in a "safe" account like the one in the example above, and part of it is used for investing. The downside is that the portion that you invest may lose money if the market does poorly and your annuity account could perform no better or possibly worse than a fixed annuity depending on market conditions.
High risk means exactly that. You stand to lose money by putting your money in this type of annuity. However, you also stand to gain a lot more and make more money off of your personal investment as the money is put into investments with a potentially very large return.
Which option is best for you will depend on your personal retirement needs. Retirement annuity plans can be used as the backbone of your retirement plan, or to supplement other streams of income such as SSI, a pension or a 401(k). Only you and a professional can decide which plan(s) may best fit your specific needs, situation and lifestyle, so talk it over with your financial advisor and start planning your retirement today.
by: Carina Smith
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