Understanding the Benefits of Annuities for Your Future
Annuities are an excellent retirement planning tool if used correctly. However, they have limits, and this is why they may be used in addition to other retirement savings vehicles. That’s why you need to understand about annuities when planning for your future.
They Have Tax Free Growth
Annuities like IRAs and 401Ks have tax-free growth. This is in contrast to the capital gains taxes you’ll pay on money growing in a traditional investment account. However, you will have to pay taxes on the money you withdraw. But you’ll have more money than what you’d see from a traditional investment account, because it could grow tax-free.
There Are No Contribution Limits
You can add money to an annuity whenever you like. This is in contrast to the penalties that you’ll incur if you don’t roll over money from an old 401K in time. You can add as much money to the annuity as you’d like. This is why they’re an ideal solution for those who have received a lump sum distribution from an old retirement account. Or you could invest the money from a real estate sale or the sale of a business. Whether that is 100K or 10 million dollars depends on you.
It Is Open to Everyone
Too many retirement plans limit your contributions if you have a high income. You can’t contribute the recommended 15% to your retirement plan if you earn 150,000 dollars a year. This is why annuities are a popular choice for high income earners. On the other hand, you can set up an annuity if you have a modest income. Furthermore, you aren’t limited to the annuities offered by your local broker. You can buy them online. You can learn more about buying annuities online here.
It Reduces the Risk that Comes with Long-Term Financial Planning
There were horror stories from the Great Recession where people’s retirement accounts were wiped out by the stock market crash, especially if they had heavily invested in one stock and the company went bankrupt. Others had to draw on the principal as well as the interest on their retirement accounts, reducing their future income.
Annuities eliminate that risk. You can sign up for an annuity that guarantees a set payment every month or a payment that rises at the rate of inflation. You can choose to buy a variable annuity that pays out more if the market is up but won’t leave you with nothing if the market craters.
It Passes Outside of Probate
The funds in an annuity pass to the beneficiaries outside of probate. You could even set up an annuity so that it automatically makes payments to your surviving spouse upon your death, reducing the amount of work they have to do.
It Protects the Money from Creditors
In general, money in an annuity cannot be touched by creditors or those suing you. The one exception is if you put money in the annuity and then turn around and file for bankruptcy. Once the annuity is activated, the money goes to the beneficiaries. However, creditors could garnish your bank account to get what they’re owed.