When it comes to planning for retirement, many people focus on accumulating enough savings to last a lifetime. But what happens once you have saved enough? How can you ensure your money lasts throughout your retirement years, especially when the market is unpredictable and life expectancy continues to rise? One solution that is often overlooked but highly effective is annuities.

Annuities are a financial product designed to provide a steady, reliable stream of income, which can be especially appealing as you approach retirement. At Midwestern Marketing (MWM), we break down what annuities are, how they work, and how they can help provide peace of mind in your retirement planning.

What Are Annuities?

At their core, annuities are contracts with a life insurance company where you make either a lump-sum payment or a series of payments in exchange for guaranteed income over time. An immediate annuity starts paying you income right away, usually within a month, while a deferred annuity delays distribution until a future date, allowing your money to grow over time. People typically choose an immediate annuity for quick, reliable income, and a deferred annuity when they want to build savings and financial strength for the future before starting to take payments. In the context of retirement planning, annuities are primarily used to create a predictable source of income, ensuring that you do not outlive your savings.

There are several types of annuities to choose from, each offering different features and benefits. The key advantage of an annuity is that it can provide you with regular payments and reliable income stream – either for a set period of time or for the rest of your life – no matter how long you live.

Types of Annuities: Choosing The Right Fit

Choosing the right type of annuity depends on your financial goals, risk tolerance, and retirement needs. Let us take a closer look at three common types of annuities:

  1. Fixed Annuities: Stability and Predictability

A fixed annuity is perhaps the simplest and most straightforward option. With this type of annuity, you will receive a fixed, guaranteed payout for a specific number of years or for the rest of your life. This provides certainty and predictability, which can be very appealing if you are looking for steady, reliable income during retirement.

For retirees who value stability and are risk-averse, fixed annuities are a great choice. The returns are guaranteed by the issuing insurance company, so there is little to no risk involved. You can rest easy knowing your income will remain the same, regardless of market conditions.

  1. Variable Annuities: Market-Driven Growth Potential

Variable annuities, on the other hand, allow you to invest your premium in a selection of investment options, usually mutual funds, with the potential for higher returns. The catch is that, unlike fixed annuities, variable annuities are subject to market fluctuations, which means the amount of income you receive can vary.

This makes variable annuities a good choice for individuals who are comfortable taking on some risk in exchange for the potential for higher returns. Keep in mind, though, that because of market volatility, the rate of return of your annuity could go up or down depending on market performance.

  1. Indexed Annuities: Growth Potential With Some Protection

If annuitants are looking for something in between fixed and variable annuities, an indexed annuity might be the right fit. This type of annuity is linked to an underlying investment performance of a stock market index, like the S&P 500. While the returns are not as high as those potentially offered by a variable annuity, indexed annuities allow for some growth potential while protecting you from market downturns.

The great thing about indexed annuities is that they offer a balance of growth and security. Your returns are capped at a certain percentage, but you will not lose money if the market performs poorly. It is a great option if you want exposure to market growth but without the full risk.

Key Benefits of Annuities For Retirement Planning

There are several reasons why annuities are an attractive option for retirement income. Here are some of the main benefits:

  1. Guaranteed Income for Life

Perhaps the biggest benefit of an annuity insurance contract is the guarantee of a lifetime income. Whether you choose a fixed or variable annuity, you can ensure that your retirement income continues, no matter how long you live. This can help alleviate the fear of outliving your savings, which is a top concern for many retirees.

  1. Tax-Deferred Growth

Annuities also offer tax-deferred growth, meaning you will not owe taxes on the income or gains from the annuity until you begin making withdrawals. Once you start taking distributions, those payments are taxed as ordinary income. This allows your money to grow more quickly because you do not lose a portion of it to taxes each year. The longer you keep the annuity, the more it can potentially grow.

  1. Customization Options

Annuities come with a variety of features that can be added to suit your unique needs. For example, you can opt for inflation protection to ensure that your income keeps pace with rising living costs, or you can add a beneficiary option to leave a legacy for your heirs. This flexibility allows you to tailor the annuity and income payments to your specific retirement goals.

Common Misconceptions About Annuities

Despite their many benefits, annuity products often get a bad rap. Here are a few common misconceptions:

  1. “Annuities Are Too Expensive”

Many people believe that annuity contracts come with high fees, but that is not necessarily the case. While some variable annuities may have management fees, fixed and indexed annuities typically have lower costs. The key is understanding the terms of the contract, and our team at Midwestern Marketing can help you navigate that.

  1. “Annuities Are Too Complex”

Annuity insurance products can seem complicated at first glance, but once you understand the basic structure and options available, they are relatively easy to grasp. Our team at MWM is here to guide you through the process and help you choose the right annuity for your financial situation.

  1. “Annuities Are Inflexible”

While it is true that once you purchase an annuity, the terms are typically set, many modern annuities offer flexibility. You can add riders to address issues like inflation and long-term care or even add a death benefit. Plus, certain types of annuities allow you to access funds if needed.

When To Consider An Annuity

Annuities can be a smart addition to your retirement strategy if you are looking for stable, predictable income. They are ideal for individuals who:

If you are nearing retirement or just beginning to think about long-term financial planning, an annuity might be a good fit for your portfolio.

MWM’s Personalized Approach To Annuity Planning

At Midwestern Marketing, we believe that every retirement plan should be as unique as the person it is designed for. Our team of experienced professionals works closely with clients to assess whether an annuity is the right fit for their retirement accounts and goals. We take the time to understand your needs and preferences, providing clear, transparent guidance so you can make an informed decision.

Whether you are looking for guaranteed income, tax-deferred growth, or protection against market volatility, we will help you find the annuity solution that works best for your retirement plan.

Midwestern Marketing is a true FMO where a handshake still means something. We value our agents and take service and contracting to a new level. The teamwork and principles by which we operate are reflected in the thousands of agents we serve nationwide. Feel free to call 877-278-3775 or email us at info@midwesternmarketing.com. We are certain we can help you grow your business!