Although the term "annuity" sounds like something only big-time Wall Street investors know about, these products can actually be a useful part of your retirement planning strategy.
Annuities are insurance policies that can help you manage your retirement income. You can deposit a lump sum or make periodic payments over time to fund an annuity contract. We then distribute your deposit plus gains back to you at some time in the future as a lump sum or in increments, which can be monthly, quarterly or annually. Payments can possibly be deferred in your lifetime and paid out to your beneficiary after you are gone. You can even control the time period and amount that your beneficiaries receive. This option is usually available at no extra charge.
This strategy can help ensure you're properly budgeting your nest egg rather than spending it frivolously. What you get in your checking account is enough to take care of your expenses until the next distribution.
There are various types of annuities. Fixed annuities allow you to get a fixed interest rate for a set period. Variable annuities can provide higher returns on your investment over time. However, instead of gaining interest, your money grows through investment options that you can choose from. The return varies based on expenses, how well your investments perform and your contributions, hence the name. Many of these modern day variable annuities have "riders" available that will provide an enhanced death benefit, guaranteed lifetime income, guaranteed growth in your income benefit base, principal protection, long-term care payout enhancements and several other optional benefits. These benefits are just like options on your car - upgrades equal an increase in the price. Your financial advisor can help you determine which of these benefits may worth the extra cost to you - if any.
For more information on effective wealth management strategies, contact Landmark Bank.
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