While we all would like to believe that we will live forever, and work forever, and keep making money forever (working, when we want, doing what we want, being paid what we want, of course) that is not the reality. The reality is that many of us will not like our work but can’t turn away from it because of the pay. For that reason it’s important for you to begin saving for your retirement as soon as possible. You may feel that one of the investment choices you should consider should be an annuity. But just what is an annuity? How does an annuity work? How much do I need to contribute to an annuity to make it worth my while? Will an annuity keep pace with inflation? All excellent questions; let’s dive in.
What is an Annuity?: You’ve likely heard the term before, maybe you’ve even found yourself swept up in a conversation about annuities but just what is an annuity? An annuity is a financial product which allows the seller to accept and grow funds of an individual and eventually pay out from that fund the benefits. There are two big types of annuities, fixed and variable. Fixed annuities guarantee a stream of income for a pre-determined period of time and variable annuities pay out less or more depending on the strength of the investments you buy into.
How Much Should I Contribute to an Annuity?: This is one of the big questions about annuities. Many people rely on their fixed annuity proceeds totally for all their retirement money. But what do you do when your annuity runs out? Where do you go then? Annuities should be one part of your portfolio if you are going to get one. If you’re hoping to have “x-amount of dollars per month” for regular expenses, that’s fine. But don’t forget, you’re buying this annuity for the future. $1000 a month today won’t be $1000 in 30 years. Or it won’t buy the same amount it does today. So even though you may own your home and be in relatively good health, you need to have money available for emergency situations and the unforeseen.
Will An Annuity Keep Pace With Inflation?: Depending on which style annuity you select, this will determine how well you keep pace with inflation. If you’re in a fixed annuity, what you get is what you get. Your $3000 payments which you purchase for the future in 2010 don’t jump up to wherever that dollar amount is when you retire in 2035.
Who Should I Buy My Annuity From?: Of course you should only get your annuity from a financial professional and you should get the best deal you can find. So see how much the bigger players are offering for their annuities and make sure that these monies are backed by a reputable named insurer.
Annuities aren’t for everyone, but an annuity as part of a larger investment portfolio could be the answer that you’ve been looking for.