Is an annuity right for you?
In planning for financial security in retirement, an annuity can satisfy two basic objectives:
- To accumulate retirement assets on a tax-deferred basis: If you’re already contributing the maximum to IRAs and any employer-sponsored retirement plans and need to save more for retirement, a deferred annuity may be the answer to your retirement savings need.
- To convert retirement assets into an income that you cannot outlive: On the other hand, if you’re near or at retirement, an immediate income annuity can be used to convert existing retirement assets into a lifetime income. An annuity is a long-term savings plan that can be used to accumulate assets on a tax deferred basis for retirement and/or to convert retirement assets into a stream of income.
While both are insurance contracts, an annuity is the opposite of life insurance:
Life insurance provides financial protection against the risk of dying prematurely.
An annuity provides financial protection against the risk of living too long and being without income during retirement.
If you are already contributing the maximum to an IRA and/or an employer-sponsored retirement plan, an annuity can be an excellent way to save for financial security in retirement.