Retirement Annuities Pros and Cons
By Bill Griffith, Jr., CFP®
Fixed and variable annuities have some special characteristics not found in other retirement savings vehicles or investments. You may already know about the benefits of investing for retirement with IRAs and company sponsored retirement plans.
Where can you save more money and receive the benefit of tax deferred growth? More importantly, where can you save more money and protect it from a market downturn?
You may already know that an annuity provides the benefit of tax deferral. It is a tax deferred savings vehicle. You fund it with either a lump sum or a series of contributions and your earnings are tax deferred as long as your money remains in the account. In exchange for either a lump sum or series of contributions, you will receive payments to help meet your retirement income needs.
When you start to receive payments depends on whether you are near retirement, already retired or still many years away. If you are younger and still saving for retirement, a deferred annuity will let your money grow tax deferred for many years until you want to start receiving your retirement income. If you are near retirement or already retired, an immediate annuity will allow you to start receiving your retirement income, typically within one year after funding your account.
An annuity is a great way to save more money for retirement, especially if you are already contributing the most that you can to your IRA and company 401k or 403b retirement plan. But, where can you save more and protect your money from a market downturn? A market decline near retirement or during the first few years after retirement can permanently reduce the lifespan of your portfolio.
If you are concerned about how a decline in the value of your retirement savings may affect your retirement, here is what you can do:
- Start with the current value of your retirement accounts.
- Then, determine how much you can realistically take out of your portfolio at various ages for different periods of time.
- Knowing how much you need to withdraw from your portfolio, you can find the perfect mix of assets based on your time horizon and risk profile.
- Based on the portfolio growth rate and your planned systematic withdrawals, you can determine how much you should allocate to either an immediate or deferred, fixed or variable option to make sure that your retirement savings will last for as long as you live and protect your money from a market decline.
By knowing the difference between the fixed and variable options, you can save more money for retirement, receive the benefit of tax deferred growth and most importantly, protect your money from a market downturn.
For annuity advice or to receive more information about the pros and cons of fixed and variable annuities, please feel free to give us a call.
Our office is located near Pittsburgh, Pennsylvania on Washington Road (Rt. 19) in South Strabane Township. We would look forward to meeting you!
W.E. Griffith & Associates, LLC
1150 Washington Road, Suite 200
Washington, PA 15301
Phone 724-228-3440 Fax 724-228-3442
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