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Have You Considered a Fixed Annuity? Three Advantages to This Retirement Option

With so many Boomers now well into retirement and Generation X poised to follow, the issue has become one of great importance at the national level. That sparked the recent introduction of the Setting Every Community Up for Retirement Enhancement (SECURE) Act in Congress.

The act would allow employees to convert their employee-sponsored 401(k)s into an annuity, which would disperse monthly payments through the remainder of their lives.

Why is Congress interested in adding this provision? The aging population requires greater safeguards as they get older and retirement becomes more widespread.

Yet many people are unfamiliar with annuities and why they might be a good option in retirement. This bill could change that and encourage people to make the switch to this stable form of payout. Here are three reasons you should consider an annuity.

1. It Removes Difficult Decisions That Come With Retirement Investing

When you receive an annuity, you no longer need to make the hard decisions about how to invest your retirement income. With guaranteed payments, you don’t have to worry about maximizing your current income. You get peace of mind associated with a steady income vs. one that can fluctuate based on investment.

2. You Won’t Outlive Your Savings

An annuity will stay with you whether you live for 10 years or 30 years past retirement age. Other retirement plans have fixed values. While you can change how much you withdraw from them to match your current needs and how long you will need them, you still have a certain amount of money to draw on.

An annuity will continue in perpetuity, on the other hand. They are more expensive because they deliver this special benefit. That clearly will be a factor in your decision, but you also receive an uninterrupted source of income. Your family may feel more at ease knowing you are taken care of in this manner.

3. You Receive Tax Advantages

Annuities have tax-deferred growth, which means growth is rolled into the principal and you do not have to pay taxes on it until you take it out. This allows your money to grow faster than with other savings staples such as CDs or savings accounts, where you pay tax on interest you earn every year.

Could the SECURE ACT Change the Way Annuities Are Offered?

Another reason to consider an annuity is that the SECURE Act could address issues that have kept many people from investing in these plans in the past. With greater flexibility, annuities could become even more valuable. Some things plan sponsors might explore include:

  • Using a percentage of 401(k) savings to buy into an annuity and allowing the rest to roll into an IRA

  • Consider offering a longevity annuity

  • Provide informational seminars to potential participants to answer their questions about annuities and the plans being offered

Annuities are not the right solution in every case. They can prompt concerns about longevity — such as, is it worth investing in them if you have a current health concern — and what legacy you can pass on to the next generation. However, there are programs designed to address such concerns.

Do you have questions about annuities? Jay can discuss these unique forms of retirement income. Reach out to him today.

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