Seniors and Annuities

Seniors and Annuities – What Retirees Need to Know

Annuities are often vital parts of retirement planning. They can provide tax-free or tax-deferred savings, and allow retirees to handle a wide range of things once they reach their Golden Years. However, there are numerous things that you’ll need to know going into this.

How Do Annuities Work?

An annuity is essentially nothing more than a stream of income – it’s a series of payments to you, broken up over a period of time. You can purchase different types of annuities, all of which offer different payout options and other benefits. Annuities offer tax-deferred benefits, allowing you to save without having to pay Uncle Sam until the annuity pays out, and you get death benefits for beneficiaries, as well as numerous options for calculating interest.

Locating and Buying Annuities

For those unfamiliar with annuities, there are several questions that need to be addressed. The first one is where you find annuities – you can purchase them from insurance companies. However, that’s not the only location. You can also buy annuities from:

• Brokers
• Distributors
• Large banks
• Financial advisors
• Mutual fund companies
• Independent financial agents

How do you purchase an annuity? This is where some people become confused, so let’s try to break it down into clear, simple language.

You purchase an annuity through one of two methods. You can pay an immediate lump sum if you like, or you can pay a series of premiums. There are two types of annuities that you want to be concerned with – tax deferred and immediate annuities. Immediate annuities begin paying out as soon as they turn a year old. Tax deferred annuities, on the other hand, have to wait until the money grows tax deferred.

Why Are Seniors Urged to Buy Annuities?

Annuities are highly recommended to seniors for a wide range of reasons, including:

• Your Social Security check is not enough to allow you to pay your bills and live comfortably
• Your pension check is not enough to pay for your bills and needs
• Your medical bills are mounting and your combined income from other sources is not enough

Annuities are designed to supplement your income, whether you earn income through Social Security retirement payments or through a pension. It can be used to help pay for anything, from increased medical costs to weekly groceries and other living expenses. For those worried about outliving their annuity payments, some have built-in protection to keep this from happening, while others offer death benefits for your beneficiaries, to ensure that money doesn’t get “lost” in the system and actually goes where you want it to.

The majority of those who own annuities are seniors for those very reasons. Most of these individuals purchased their annuity after the age of 50, when they realized that they would need a bit more financial help in the future than they’d planned for initially. However, a significant percentage (up to 14%) of purchasers are actually over the age of 64 – it’s never too late to buy an annuity and begin benefiting from better financial stability.

Is an Annuity Right for You?

From the information above, it might sound like an annuity is right for almost anyone. That’s not the case. There’s no such thing as a one-size-fits-all financial tool (see the failure of Social Security for proof of that). You will need to determine if an annuity is right for you based on several different factors. Consider the following:

• Your age
• Your current and future health care needs
• Your current assets and liabilities
• Your retirement plans
• Your current retirement funding options – 401(k), Social Security, etc.

With an annuity, you can make unlimited annual contributions, which is in stark contrast to how other retirement savings vehicles work. You also get to use the payments of premiums on long-term care insurance and never pay income tax for those withdrawals.

Before you decide that an annuity is right for you, you should make sure that you understand the contract you’ll be signing. Go over every detail of the annuity and make sure that you know exactly what’s being spelled out. Closely examine any language pertaining to fees and charges that you’ll be assessed and responsible for paying. Finally, make sure that you consider how that annuity will complement your existing retirement portfolio and whether you’ll have access to cash for emergencies or immediate needs.

However, understand that not all opportunities are equally “golden”. Be aware that there are underhanded, unethical agents out there. If the agent seems to be putting undue pressure on you or they provide a limited time offer, it might be best to walk away. That goes double if you find that they are not disclosing all the fees and charges involved.

Passing Your Annuity Along

Unlike some other financial tools out there, annuities can be used to benefit your family after you are gone. You simply pay a small annual fee on a deferred annuity, and it will continue to pay your beneficiaries after you die. There are also guaranteed annuities. These provide a cash refund option when you die that goes directly to your beneficiaries.