The Boldin Financial Planner Take control of your plans. Retire earlier, with more security and find financial confidence.
Get expert support Make sure your plan is set up correctly with a coach. Or, talk to a CERTIFIED FINANCIAL PLANNER® from Boldin Advisors for even more guidance and support.
Resources Fuel your financial planning know-how
Blog Your guide to financial planning and retirement
March 13, 2015 • 3 minutes
In recent years, many people have decided to invest in annuities as part of their financial plan in retirement. Payouts for these investments are typically better than other income-producing investments because those who purchase annuities pool their mortality risk with other annuity purchasers.
Annuities can be a confusing product. Learn about the pros and cons of annuities and more…Annuities can be a great part of your retirement plan, but these investments are still subject to low interest rates. Though there is no perfect way to avoid this, the strategies below can help you counter low interest annuity rates:
You can ladder annuities just CDs and bonds. By splitting your purchase amount over time, you can potentially take advantage of rising rates in the future. For instance, if you plan on putting $200,000 into an annuity, you could instead invest $50,000 in four annuities over a four-year time period, in which you hopefully catch higher interest rates.
There are certain products such as deferred income annuities, or longevity annuities, which allow you to start income streams at different times. This strategy can help you address inflation in the future. By using products like these, you can set your income streams to start at ages 70, 75, 80 and 85, keeping in mind that the guaranteed payment is higher the older you are.
This strategy can also be combined with laddering purchase dates so that you purchase annuities over a set time period and structure the income streams to payout at ages 70, 75, 80, and 85.
Fixed-rate annuities, or multiyear guarantee annuities (MYGAs), are a product option that offers a guaranteed annual percentage for a specific time period, and currently, these annuities are offered with as short as three-year surrender-charge time periods. This option allows interest to grow and compound tax-deferred within a non-IRA account.
Annuity specialist and critic, Stan Haithcock recommends “purchasing a three-, four-, and five-year MYGA to hopefully have money coming due as rates are rising. For example, a $300,000 allocation would place $100,000 in a three-, four- and five-year MYGAs.”
Though it is hard to be patient when it comes to your finances, remember that interest rates will most likely rise in the future, offering higher annuity payouts. You may not experience high payouts in the beginning given the current economic climate, but interest rates will most likely improve. In fact, about a decade ago, annuity rates were nearly double what they currently are. Waiting for rates to rise before buying an annuity can be an effective strategy.
Low interest annuity rates do not have to stop you from including this investment in your retirement plan. By using the strategies above you can effectively counter some of the effects of these low interest rates and be on your way to a successful retirement.
An Annuity Calculator is a great way for you to find out how much income your money will buy. You can experiment with different time frames, purchase dates, whether or not you want to guarantee a return on your investment, whether or not you want survivor benefits and inflation protection.
Take financial wellness into your own hands and do it yourself retirement planning: easy, comprehensive, reliable.
If you are worried about paying for retirement, it is worth evaluating the pros and cons of annuities. The Big Takeaways… Annuities are a great way to provide guaranteed lifetime income in retirement while hedging against inflation and other financial woes. Though less risky, annuities generally yield lower returns than other investment products, and […]
Should you buy an annuity? Investing your capital and planning for retirement are important practices, but there are a ton of options out there for how and where to park your money to realize potential growth in the future. Simply put, an annuity is a contract between you and an insurance company. You essentially give […]
Many people decide to include annuities as part of their retirement portfolio. These investments can often be a great way to complement other retirement income, such as pension plans and Social Security payments. But is an annuity right for you? It’s important to understand the advantages and disadvantages before investing. Advantages of Annuities […]
