The Flip Side – Annuities Go The Distance

Annuities are the other side of the coin – on one side you find Life Insurance, which protects and provides for your loved ones if you die too soon. On the other side you find Annuities, which protects you if you live too long. Exhausting your retirement savings is a real fear for many people when they begin to face and plan for their financial futures.

Many financial advisors are hesitant to switch money into annuities because in a way, it limits what they’re able to do with your portfolio. The benefit to a holistic approach to financial planning is that the long-term “big picture” is considered and if annuities are what is in your best interest, an annuity is what will be recommended to you.

Annuities are set up through the financial institution (bank or insurance company) you deal with and begin with a very large, lump sum of money. You then decide if you want the kind of annuity that offers you a fixed income or an income that varies depending on the market returns each month.  Fixed annuities offer the same income to you each month while variable annuities guarantee a minimum monthly payment with the potential of added income depending on market performance.

With a standard immediate annuity, you are more or less creating a stable pension for yourself. You may that large, lump some of money and begin to receive payments right away. With deferred annuities, you pay the lump sum, but set a specific date or age you want the payments to begin at. Often the earlier the annuity is purchased, the better the rate of purchase and this is because the financial institution then has time to reap investment gains for themselves before it begins to pay out to you. If you have a spouse to consider, a joint-survivor annuity will provide for you both so in the even that one of you dies, the other will be able to continue to receive those monthly income payments.

Determining how much to invest is another tricky task that will vary depending on the other investments you have made, any other pensions or guaranteed retirement savings in place and your estimated, monthly living expenses and desired standard of living and quality of life once you hit retirement.

The trickiest part to setting up annuities is that initial lump sum of money. Once it’s invested, you cannot touch it until those monthly payments begin. There are no benefactors for the remaining amount of money in an annuity once you die which means the overall inheritance for any loved ones you leave behind is smaller. There are some exceptions to this blanket rule which might allow a portion of the initial lump sum to be reclaimed, but that is a discussion for you and your holistic financial planner to discuss.

Annuities are a great way to provide consistent retirement income in order for you to set and maintain a certain standard of living, but it’s important to look over all available retirement options with your holistic financial planner and figure out which options are best for you and will give you the kind of retirement you have your heart set on. Looking at retirement from a holistic standpoint will help you better determine which investment options will maximize your savings and help you meet your retirement goals.

 

Ashley Brown

Ashley is the Creative Director and is responsible for continuous refinement, testing, and execution of the company’s online platform. This includes optimizing the company’s website, graphics, blogs and overall strategy. She is a licensed Financial Advisor within Canada that holds an accredited mutual funds license, securities as well as her life/medical license.

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