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Annuities As A Source Of Retirement Income: Friend Or Foe?


Annuities are one of the most boring sources of retirement income.  Far from giving you the thrill you get from investing in the newest kind of cryptocurrency or buying stock in a startup that promises to change the world for the better, annuities have been around since the Roman Empire, when they acted as pensions for retired soldiers.  The only way in which annuities are more fun than life insurance is that you do not have to die to get the money.  Meanwhile, the amount of money you receive will most likely not be enough to cover all your expenses.  Rather, it is a supplement to your Social Security income and, if you are lucky, your employer-provided pension or distributions from your retirement accounts.  The reason that annuities remain popular, however, is that they are a guaranteed source of income for the rest of your life; fewer other investments are as reliable.  A Washington DC estate planning lawyer can help you build a comprehensive retirement plan, possibly one that includes annuities.

Do Annuities Give You a Return on Your Investment?

When you buy an annuity, you pay a lump sum to an insurance company, and the insurance company invests it, earning interest.  Years later, when you are ready to retire, you can start getting monthly payments from your annuity and keep getting the payments for the rest of your life.  The amount of your payout is usually less than five percent per year of the original amount you invested.  This means that, if you invested $100,000 in the annuity, and your monthly payout is $400 (that is, $4,800 per year, four percent of the original investment amount), you will get back more than you paid in as long as you live more than 25 years from the time you start taking monthly payments from the annuity.  Most annuities do not let you take out money until you are about to turn 60.

Which Annuity Is Right for You?

Many different types of annuity are available.  These are some factors to consider before buying an annuity:

  • Is the monthly payment amount fixed or flexible? Will the monthly payment amount be adjusted for inflation?
  • Can you name a beneficiary for death benefits on the annuity, so that it will act like a life insurance policy after you die?
  • What are the penalties for withdrawing money from the annuity early?

Annuities are not your only choice for retirement income, but they are one of the most reliable sources.  The best option is to have multiple income streams during retirement.  A conservative investment like an annuity can offset the risk associated with some of your other investments.  Retirement income is not the only aspect of estate planning, but it is important to discuss it with your estate planning lawyer.

Contact Tobin O’Connor Concino P.C. About Diversifying Your Retirement Income

An estate planning lawyer can help you figure out how to ensure financial support for yourself and your family after you retire.  Contact Tobin O’Connor Concino P.C. for help today.



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