Money

How Annuities Can Protect You

Five tips on how annuities can help you weather financial storms during retirement.

According to a study by the Employee Benefit Research Institute, only 21 percent of Americans say they are “very confident” they’ll have enough money to live comfortably through retirement. Issues driving that lack of confidence include long-term care expenses, the unpredictability of stocks, the reduction in pension programs, reports that many people are behind in retirement savings, and the fact that retirees are living longer. In that context, annuities are gaining interest as an investment option.

Annuities can have substantial benefits when used in the right situation. That stream of guaranteed income gives you some financial consistency and predictability, which alleviates stress and concern, especially about where stocks are headed.

There are five ways that an annuity can work as a hedge against market volatility:

Gives income guarantees. Because Social Security and a pension are typically not enough to cover basic expenses in retirement, many retirees must use their portfolio as an income source in retirement. If all your money is invested in the market and your portfolio starts to go down, you may get nervous about whether your income source is going to last the rest of your life. An annuity can fix this problem by providing income guarantees. A portion of your portfolio can be used to buy these guarantees.

Prevents a panic sell. Having an annuity as a portion of your portfolio also helps you to not sell in a panic. Since a fixed annuity gives more stability to an overall portfolio, your portfolio will typically be less volatile. When the markets correct, your portfolio should not decline as much. If the annuity is providing you a guaranteed income, you can then ride out the dips knowing that your income from the annuity is enough to cover your retirement spending needs.

Makes you think more long-term. Declining times for a portfolio doesn’t necessarily mean it’s time to bail out. With an annuity, it’s easier to commit long-term to a stable portfolio as opposed to a highly volatile one.

Avoids market losses. Equities, bonds, commodities – anything you invest in can go down in price, but a fixed annuity does not. Even a fixed-index annuity will not decline if the market goes down. The portion of your portfolio that is allocated to a fixed annuity can completely avoid market losses.

Brings more predictability. Investment markets are not predictable, and we live in a world of uncertainty. But with an annuity that can guarantee you a specific interest rate, you can know exactly what it will grow to over time.

Annuities have some benefits that can help retirees. Stocks can be a great source of income, or a source of great stress, so more people are looking for streams they can count on.

About the Author: Ryan Eaglin is the founder and chief advisor at America’s Annuity. He has 14 years’ experience in the retirement and lifestyle planning field.

 

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