An annuity can be a powerful addition to a comprehensive retirement portfolio, especially if you're concerned about outliving your retirement funds. These financial products can alleviate longevity concerns by providing a guaranteed income stream, typically in the future, ensuring improved stability and security in retirement.
However, there are numerous types of annuities, and some are more advantageous for retirees than others. With so many options available, choosing the right annuity for your retirement can be challenging.
Fortunately, Leonard Financial Solutions can help. Our team of independent and ethical financial services advisors and annuity providers can guide you through your investment options and collaborate with you to develop a strategy that meets your needs and empowers you to achieve your financial objectives for retirement. Here's what you should know about popular annuities, what to consider when selecting a retirement annuity, and how we can assist you.
Exploring Your Annuity Options
Each type of annuity has distinct features, benefits, and considerations. Here's an overview of some of the most common kinds of annuities and how they work.
Fixed annuities earn a guaranteed annual interest rate – usually around 4 or 5 percent – during the contract's accumulation phase and provide regular payouts after annuitization. Fixed annuities are sometimes called "CD annuities" because of their similarity to Certificates of Deposit (CDs).
Fixed annuities protect your principal, so you can't lose the money you've invested, but with a set annual interest rate, you're prevented from participating in true market gains.
Whereas fixed annuities are principal protected to prevent you from losing money, variable annuities exist at the opposite end of the investment spectrum. These financial products let you direct your premium payments to options such as mutual funds, stocks, and bonds and tie the value of the annuity contract to the performance of those investments. While this makes it possible to participate in market-driven gains when your investments do well, it also means you could lose money in a market downturn. Variable annuities also come with costly management fees.
All things considered, we believe other annuity options may better serve retirees in achieving their financial goals without the volatility, risks, and costs associated with variable annuities.
Immediate and Deferred Annuities
Sometimes called single-premium annuities, immediate annuities let you make one large cash deposit or roll funds from your 401(k), individual IRA, or another retirement plan into the annuity contract and begin receiving payouts immediately. Immediate annuities provide a guaranteed income stream for the period specified in the contract, but the overall potential of your investment is limited because the principal doesn't accrue interest. Meanwhile, you can purchase and fund deferred annuities with lump sum or monthly premium payments and set your payouts to start at a specified future date. With deferred annuities, your investment accumulates interest, and you can defer taxes until annuitization.
However, immediate and deferred annuities share a significant disadvantage: irrevocability, which prevents you from revoking, canceling, or surrendering an established annuity contract.
Fixed Indexed Annuities
Fixed indexed annuities offer the growth potential of variable annuities or stocks with none of the risks. These financial products provide guaranteed retirement income, tax-deferred growth linked to the performance of your chosen stock market index, and principal protection. With fixed indexed annuities, there's no risk of losing the money you've invested, and your annual interest rate is never less than zero – even in a market downturn. This makes them an excellent investment for people concerned with longevity or loss in retirement.
Factors to Consider When Selecting a Retirement AnnuityChoosing a retirement annuity requires carefully weighing multiple factors, each of which can substantially impact your financial security during retirement. Here are a few things to keep in mind when comparing your annuity options:
- Retirement objectives. Considering the financial support and security necessary to achieve your envisioned retirement lifestyle is a critical point that can guide annuity selection.
- Risk tolerance. Determining your comfort level with market volatility and potential loss is vital when choosing an annuity.
- Payout options. Evaluating whether lifetime income, payments over a specific period, lump sum withdrawals, or other options best serve your retirement aspirations is crucial to selecting the "right" annuity.
- Interest rates or investment performance. Assessing the interest rates for fixed annuities and the historical or projected returns for variable or fixed indexed annuities is essential to ensuring your selected annuity aligns with your requirements.
- Flexibility and liquidity. Reflecting on your desired level of flexibility and liquidity can help you choose an annuity that meets your retirement needs.
- Fees and expenses. Familiarizing yourself with the fees and expenses associated with various annuities can help you make an informed decision and ensure that the chosen option matches your financial goals and priorities.
- Surrender period and terms. Understanding the surrender period and terms of different annuities is essential, as it dictates when and how you can access your funds without incurring penalties or fees.
Fixed Indexed Annuities Offer Outstanding Benefits for RetireesFixed indexed annuities are a standout choice among retirement investment options, especially if you're concerned with longevity and financial loss and desire flexibility and growth opportunities. Compared to other types of annuities, fixed indexed annuities offer clear benefits, such as:
- Purchasing and funding flexibility. Fund your fixed indexed annuities with a lump sum or monthly payments.
- Downside protection. Take comfort in principal protection when your selected market index performs poorly.
- Growth potential. Enjoy market gains when your chosen market index does well.
- Lifetime income options. Take advantage of lifetime income options that protect against longevity risk and provide peace of mind.
- No fees. Avoid the upfront fees associated with other types of annuities in favor of an annual fee deducted from your account balance.
- Surrender period. Cash in your annuity early for the surrender fee specified in the annuity contract.
Our Fixed Indexed Annuities Provide Superior Flexibility and BenefitsThe fixed indexed annuities we offer at Leonard Financial Solutions provide unique benefits compared to traditional fixed indexed annuities. Our clients enjoy exceptional flexibility and growth potential thanks to:
- Uncapped interest. Unlike some fixed indexed annuities, the ones we offer don't place a cap on interest accrual when the market index performs well. Take advantage of authentic participation in market gains when your selected market index is up, and rest easy with principal protection that shields your investment from loss when it's down.
- Limited liquidity. With our fixed indexed annuities, you can withdraw up to 10 percent of the annuity's value each year for the contract's first ten years (the accumulation period).
- Returns that typically exceed inflation. Boasting average returns that historically beat inflation, the fixed indexed annuities we offer make it easier to let go of worries about returns being negated by rising costs.
- Chronic or terminal illness waiver. With a rider allowing for penalty-free withdrawals or surrenders following a terminal diagnosis or long-term care requirement, our fixed indexed annuities allow access to your funds when you need them the most.
Adding a Fixed Indexed Annuity to Your Retirement Plan
Fixed indexed annuities fit easily into diversified retirement portfolios that balance risk and potential returns, providing a stable foundation while allowing for growth opportunities.
Leonard Financial Solution's trusted financial advisors and annuity providers can help you explore your options to identify the blend of investments that best serves your retirement objectives. We partner with reputable and well-established A+-rated annuity carriers to give our clients vital security, stability, and confidence in their retirement investments.
At Leonard Financial Solutions, LLC, we also prioritize partnering with reputable annuity carriers with A+ ratings. These companies have established themselves in the industry for well over 100 years and possess significant assets in the range of hundreds of billions of dollars. This level of financial strength and stability provides our clients with assurance, longevity, and protection against collapse or financial instability.