As the reality sets in that you’re edging closer towards retirement, finances can become a concern. How will you guarantee consistent retirement income and be able to maintain your established living standards? When in doubt, consider an annuity as a means of avoiding outliving your money and bridging the retirement income gap.
“Mortality Credits” and Timing
Essentially, an annuity is a fixed sum paid on an annual basis for the rest of your life. With mortality in mind, it’s important to consider the pay rate of an annuity, particularly at a later age when monthly payments are higher due to insurance companies assuming a shorter payout period. In actuality, payments are calculated by weighing the effects on your chosen insurance provider’s pool of collective annuity funds with other annuity purchasers who die earlier than anticipated. As morbid as it all sounds, you’d benefit more from timing your annuity purchase when rates are lower, and as early in your retired life as possible.
Important Conditions to Consider
The first thing you should do is carefully read and reread the terms of an annuity, as once signed it can’t be altered in any way. Make sure you plan ahead and opt for terms that suit your present needs and accommodate for the future of your retired life. Also bear in mind that there is no death benefit payable to your beneficiary beyond any guarantee period, and this rule also applies to a joint annuity in the event of the last surviving annuitant’s death. With these conditions considered, you need to learn about and select an annuity plan that is ideal for your present situation. Whether it’s a life annuity that pays out as long as you live, a joint life annuity that is attached to yourself and another person, or a single or joint term-certain annuity that goes to your beneficiary upon the death of the last surviving annuitant, the plan you choose is what will shape your financial future as a retiree.
Opting for a Guaranteed Period
In some cases, you can select a guaranteed period of five or ten years if not longer. In this instance, a death benefit will be paid to your beneficiary in the event of the last annuitant’s death. However, it is important to bear in mind that the longer this guarantee period is, the smaller your income cheques will be. Still, it’s a small sacrifice for peace of mind, and many opt for a guaranteed period as a result. Other varieties of annuities are available, including those that defer income for up to ten years (albeit with higher payments), as well as plans that are smaller and sufficiently bridge a gap when leaving an estate as your top priority. This latter alternative enables for you to invest your nest egg balance in a diversified stock and bond portfolio complete with other investments consistent with risk tolerance, which can be left to registered heirs.
In the end, an annuity of any kind acts as a way of maintaining the structural integrity of your finances. As retiring brings with it a loss of wages, it’s important to consider available options, but it is imperative that you opt for a plan that respects your needs. If you require assistance with bolstering your retirement income with an annuity, The Beacon Group of Assante Financial Management Ltd. is fully prepared to help you make the most appropriate decision befitting your needs and future plans.
