For most people, the biggest financial concern is retirement. An April 2014 Gallup poll found that nearly 60 percent of Americans were moderately to very worried about not having enough money during retirement. The percentage jumped to 70 for Americans between the ages of 30 and 49 and to 68 percent for people between the ages of 50 and 64.
Concerns about retirement may never fully go away. However, if seniors and others are better educated about their options in retirement, the more comfortable they are likely to be with their finances during retirement. One retirement vehicle, annuities, deserves as a closer look because it can be a valuable resource to retirees. This is only true if you fully understand annuities and what you are purchasing.
Longer Lives Mean Higher Costs
One common question regarding retirement is “why is it such a concern today?” While there are several factors that make retirement more of an issue for today’s and future seniors, one major issue is that people are simply living much longer.
For example, the average life expectancy in US is now over 80-years. Longer lives tend to mean more illnesses, such as cancer, dementia, or chronic conditions, such as diabetes, which push health care costs up high as well as increasing the general cost of living. Healthcare spending makes up about 20 percent of the country’s gross domestic product, according to the Financial Times.
Quite simply, the longer a person lives, the more he or she will need to have in retirement savings. If a person could live on $50,000 per year in retirement, living 15 years would cost three quarters of a million dollars. Living for 20 years in retirement would cost $1 million.
Annuities Are Common, But Less Common Than in Years Past
The longer people live, the more certain they need to be that there will be money to see them through. Annuities are one way to offer guaranteed steady income throughout retirement, yet they seem to be less popular today as an investment option.
A report compiled by the Insured Retirement Institute found that about one third of investors have an annuity tucked away in their retirement portfolio. However, the percentage of people with annuities had fallen between 2012-14. In 2012, more than 40 percent of people who invested in retirements had an annuity. Interestingly enough, the report stated that younger people, members of Generation X and Y who had higher incomes were the most likely to own fixed rate and deferred annuities.
Immediate Annuities Are Up
While annuities on the whole are less popular in 2014 than in 2012, one type of annuity is proving to be more popular. The Insurance Retirement Institute noted that immediate annuities have become increasingly common.
Since 2003, sales of immediate annuities have doubled. The number of sales increased by 20 percent just last year. Immediate, fixed annuities offer a number of advantages that may make them appealing to buyers, particularly to people near or at retirement.
One feature of immediate annuities is the lifetime payout. Another is the survivorship credit, which is likely to become even more attractive as the country continues to recover from the recession and interest rates continue to rise.
Variable and Deferred Annuities are Still a Popular Pick
While immediate, fixed annuities might be appealing, they aren’t the only option, nor are they necessarily the best option. The Insurance Retirement Institute found that more than 90 percent of all annuity sales in 2013 were for deferred annuities. Of those deferred annuities, the majority were variable.
The More People Know, the More Wealth They Tend to Have
Wealthy investors might be more likely to invest in an annuity. However, they are also more likely to do a considerable amount of research before purchasing the annuities. The more money a person has, the more he or she has at stake when it comes to investing.
People of average incomes can use the same criteria as the very wealthy when it comes to purchasing an annuity. People should always look at the financial health of the insurance company before purchasing, to make sure the company will actually be able to pay out the funds for the long haul.
Guaranteed Income Makes Annuities Appealing
There are a number of unknowns when it comes to retirement. Income from retirement accounts can fluctuate as the market goes up and down. However, annuities typically offer a set, guaranteed amount of income every month.
Along with offering a reliable source of income, annuities offer investors the opportunities for growth and tax deferment. Deferred tax payments can be particularly appealing, as a retiree doesn’t have to worry about paying taxes until he or she is actually going to use the money. Finally, many annuities offer investors the ability to pass down some of the investment to their children or heirs, making it an appealing option to the very wealthy and for people of more modest incomes.