Retirement can be a daunting phase if you don’t have a substantial nest egg to fall back on. This is why many choose to invest in annuities, which can provide a steady stream of income during retirement years. Choosing the right annuity can secure a stable and comfortable retirement. While there are various types of annuities available to the public, such as fixed, variable, and indexed annuities, below are the best ones to consider for your retirement plan.
1. Fixed Annuities.
Fixed annuities are often compared to Certificates of Deposit (CDs) because they guarantee a specific rate of return on the money invested. Purchasing a fixed annuity promises regular and fixed payments over a certain period or for life, plus principal protection, making it a safe bet for retirees looking for a predictable income stream. Companies like Fidelity & Guaranty Life, AIG, or New York Life often offer good rates on fixed annuities.
2. Immediate Annuities.
Immediate annuities are an excellent option for retirees who want to start receiving payments immediately after investing a lump sum. When you purchase an immediate annuity, you begin receiving payments within one year of purchase. It’s a good fit for individuals who are already in their retirement years and need a steady income right away. Companies such as MassMutual, Northwestern Mutual, and Principal are known for offering competitive rates on immediate annuities.
3. Variable Annuities.
If you’re looking to hedge inflation and willing to accept a bit of risk, variable annuities may be a suitable choice. In a variable annuity, your payouts are tied to the performance of investments. While this can mean higher returns, the downside is that if your investments underperform, your payouts will drop. This type of annuity is suitable for those who are somewhat risk-tolerant. Vanguard, Fidelity, and Security Benefit Life offer some of the top variable annuities.
4. Indexed Annuities.
Indexed annuities are a hybrid between fixed and variable annuities. Your returns are linked to the performance of a particular stock market index, but it also offers a minimum guaranteed payout. This hybrid model provides some market exposure with a cushion against market downturns. However, there are often caps on returns, so it’s not for those looking for high growth. Insurance companies that have a strong presence in the indexed annuity market include Allianz Life, Athene, and Nationwide.
5. Deferred Income Annuities.
A deferred income annuity is a type of annuity that begins payouts at a future date chosen by the annuitant. The added advantage here is that the longer you defer your payouts, the higher they usually will be. These annuities are excellent tools to hedge against longevity risk, which is the risk of outliving your assets. Pacific Life, Principal, and Symetra are some companies providing excellent deferred income annuities.
Choosing the right annuity primarily depends on personal factors such as your income requirements, risk tolerance, cash flow needs, and your overall retirement plan. It’s recommended to consult with a financial advisor before making a decision. Annuities can provide longevity insurance and peace of mind in retirement, but like any investment, they must be chosen with care. The ones listed in this article have stood out in terms of their offerings, but it is essential to do your research and see which fits your retirement plan the best. The primary aim is to secure a reliable and steady source of income during retirement, and the right annuity can be the solution for that.