Americans for years have looked to the stock market to help meet their long-term retirement needs. Unfortunately for those near or in retirement, market gyrations can wreak short-term havoc with even the best-designed pension funds, 401(k)s, and individual retirement accounts.
For investors seeking retirement income stability, now might be a perfect time to consider a safe choice based on the claims paying ability of the insurer: retirement income from a fixed annuity.
A fixed annuity is a contract made with an insurer in which an individual takes either a lump-sum payment or a series of payments, and the insurer agrees to pay that money plus interest back in a lump sum, over a fixed period of time, or for as long as the individual lives.
With the guaranteedi interest rates of a fixed annuity, investors avoid market volatility. Typically, the insurer supports these guarantees by investing in a well-balanced portfolio of quality corporate bonds, government securities and real estate, leaving the investor with guaranteed retirement income.
Fixed annuities offer:
n Guaranteed rates of returni. Investors know exactly how much interest their annuity will earn each year.
n Tax-deferred growth. Investors won’t pay taxes on any of the earned interest until they start to make withdrawals, so their money has the potential to accumulate more quickly than a taxable investment at the same rate.
n Flexibility of contributions. With a flexible premium annuity, investors are able to set aside the amount they want when they want to for retirement.
A fixed annuity can bring balance to a retirement portfolio that may already hold more aggressive investments such as stocks, or can simply add a degree of safety and stability to one’s overall investment portfolio.
Equally important, with a fixed annuity, one can choose to receive income one can’t outlive. Investors either can choose to receive income over their entire lifetime or for a specified number of years.
Fixed annuities may offer many benefits for the conservative investor, including:
n Guaranteedi return of premium payments.Some annuity contracts guarantee that investors will receive no less than the sum of all premiums paid, less any previous withdrawals, if the annuity is surrendered. However, some withdrawals and surrenders may be subject to surrender charges and/or tax penaltiesii.
n Access to accumulated value. Many annuity contracts allow investors to withdraw a percentage of the accumulated value each year without incurring surrender charges. With some annuity contracts, investors also can access the funds in the annuity without surrender charges in cases of terminal illness or nursing home confinement. And, when investors start taking regular withdrawals in retirement, they can often choose from convenient, tax-advantaged options such as receiving an income for life, receiving the interest only, or taking a set amount on a regular basis.
n Benefits to beneficiaries. Proceeds from an annuity can pass directly to one’s beneficiary, bypassing the time-consuming and costly probate process.
Some things in life should come with guarantees. Retirement is one of them. Fixed annuities may help maintain one’s financial independence throughout retirement, regardless of the performance of the stock market.
Thrivent Financial is represented in the local area by Financial Consultant Dana Erickson, ChFC, CASL. She has offices at 204 Third St. South in Stillwater and can be reached at 651-439-7091.
I Guarantees are backed by the financial strength and claims-paying ability of Thrivent Financial for Lutherans.
ii Surrenders or partial surrenders from an annuity are subject to income taxation and surrender charges in the first seven contract years starting at 7 percent in the first year and decreasing 1 percent each year until it becomes 0 percent in year eight. Earnings distributed prior to age 59-and-a-half may be subject to a 10 percent federal penalty tax.