Are annuity investments worth it for seniors?
Annuities are a popular insurance option for seniors because they can provide stable income while preserving your assets and offering tax advantages. When you purchase an annuity, you agree to pay your premiums to the financial institution, and that money is then invested in an annuity fund.
In return, the financial institution agrees to make regular payments to you for a predetermined period, up to the remainder of your life in some cases. And, those payments could start immediately or years down the road.
Considering the benefits, annuities can be a compelling way to plan for retirement in your working years. But what if you're a senior citizen who's already retired or is planning to retire soon? Are annuities worth it for you?
Find out how an annuity can help you manage your retirement finances today.
Are annuity investments worth it for seniors?
"Annuities are one of many investments that may make sense for seniors," says Dan Casey, investment advisor and founder of Bridgeriver Advisors. Here are a few reasons seniors may want to consider annuities:
They can provide a stable income
As a senior, it's typically important that your investment portfolio offers reliable income — and an annuity could help.
"If you like guaranteed income, then an income annuity may make sense," says Casey.
Income annuities typically offer regular monthly payments to investors — and there are several options to choose from. For example, if you choose an immediate annuity, you'll make a large lump sum investment and will then start receiving your monthly annuity payments shortly after — typically the following month.
Or, if you don't need the income immediately and want to take advantage of annuity growth, you can also choose a deferred annuity instead. These are contracts between you and the insurance company by which you start paying premiums immediately and the insurance company provides regular payments that start at some future date.
Invest in an annuity now for a stable retirement income stream.
There are different types of annuities to choose from
Immediate and deferred annuities are just two types of annuities you can choose from. However, all types of annuities fall into one of two categories, fixed or variable, and each offers a different set of benefits.
"There is a large contrast between fixed and variable annuities as well as several similarities between both types," says Peter Casciotta, owner of Asset Management & Advisory Services.
These types of annuities "drastically differ regarding asset preservation and/or the need to protect one's principal," Casciotta says.
If you're interested in protecting your principal to ensure it covers you throughout your retirement, then a fixed annuity could be the better option. However, if you're more concerned with asset growth, a variable option may be the better choice in your situation. It's important to note, though, that variable annuities can also decline in value, so it's important to do your research before making a decision.
You can customize your coverage
Annuities are also customizable, and you can add riders to these products like you could if you were to customize and enhance a life insurance policy. Some of the more common annuity riders include:
- Long-term care: The majority of adults over the age of 65 will need some form of long-term care at some point in their lives — and that care can be costly. Adding a long-term care rider to your annuity could help you cover the cost of this type of care if you need it later in life.
- Guaranteed minimum withdrawal: This allows you to withdraw a set amount of money from your annuity on an annual basis until you've withdrawn the entire investment value.
- Guaranteed minimum income benefit: This rider is particularly useful for variable annuities because it guarantees a minimum income even if the annuity's underlying investments generate losses.
- Impaired risk rider: This is an important rider if you have a pre-existing condition that's likely to limit your lifespan. It provides higher annuity payments in consideration of the shorter span in which those payments will likely be needed.
- Inflation rider: These riders help to make sure your annuity payments grow alongside consumer prices up to a certain limit.
Find out how an annuity can help you achieve your retirement goals.
The bottom line
Annuities may make sense to consider for seniors — and that's especially true for those who are looking to generate a stable income or protect themselves from growing prices. And, with different types of annuities to choose from and several riders to customize your coverage, an annuity could be a valuable tool to help you successfully manage your finances as a senior.
