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Uncovering Annuities

When you look at the picture of retirement in the US, things can start to look a little bleak. A Gallup poll in 2013 found that younger people were more optimistic than those near retirement age about their ability to live comfortably during their retirement. More than half of 30-49 olds and those in the age of 50-64 believed that they wouldn’t live well when, or if, they retired.1

Much of the insecurity about retirement comes from uncertainty about what sources of income will or will not be available when people decide to quit their jobs. While you might have some familiarity with concepts such as Social Security, 401(k), and IRA savings, and annuities, the full details of each might not be clear to some.

Annuities can be particularly confusing for people of all ages. However, when understood and used correctly, it can be a worthwhile vehicle that makes retirement a bit more comfortable.

Annuities Have Changed Over Time

According to a 2014 survey by The Phoenix Companies and reported on in LifeHealthPro, more than 50 percent of people surveyed were not familiar with annuities. Lack of familiarity can breed contempt in certain cases, as those unaware of what the investment product could offer them can be suspicious of annuities. The survey also found that people were unaware of the many benefits commonly included in today’s annuities.

Annuities offer three main benefits. First, unlike IRA or 401(k) plans, the amount a person can invest in an annuity every year does not have a limit. This means that a person who is behind in retirement savings can quickly catch up in the last few years of his or her career.

The second benefit consists of being able to tax-defer the amounts invested. Until it’s time to start receiving money from the plan, you do not have to pay income tax on the original contribution or on any earnings.

You Have Options

A third benefit of annuities you might be unaware of is that many of them offer a number of options. First, a person can decide to receive payments from the annuity in the form of a lump sum, or in the form of fixed, regular monthly income.

A Gallup poll from May 2013 found that nearly half of all non-retired people planned on relying on the amounts saved in their retirement accounts once they stopped working. 30 percent of all non-retired people were hoping to use Social Security payments as the bulk of their post-retirement income.

No matter what the primary source of income is in retirement, it’s not recommended that people rely on a single stream of revenue. Adding annuities to the mix offers an additional source of income and a bit more security.

Annuities Offer Additional Stability

People who were near or in retirement when the recession struck in 2008 experienced a crude surprise when their retirement portfolios lost a lot of value, seemingly overnight. Despite this, about 50 percent of those surveyed by the Phoenix Companies stated that they were going to depend on the funds in their retirement accounts for monthly income.

An annuity that offers a guaranteed monthly income for the rest of a person’s life can often be a safer and more stable option. For people who are in retirement now and are still relying on the income from their 401(k) or IRA, it is strongly recommended that they speak with a financial professional about the potential benefits of an annuity.

Annuities Could be More Popular

Despite the stability and other benefits offered by certain annuities, they aren’t a terribly popular pick. Just 20 percent of people in the Phoenix Companies survey planned on using annuities. The Gallup poll results revealed that just 9 percent of all non-retired people were considering using annuities as a major source of income in retirement.

In many cases, annuities aren’t as popular as they could because of a lack of information about the products. Retirement advisors or advocates can provide people with additional information on annuities. Doing so would not only provide a new source of income to people in retirement, but also help them learn to choose an annuity carefully, to avoid those that do have high fees, or are high in risk.

Confidence is Key

Confidence is the key to a comfortable retirement. People who are confident that they have made the right choices for their money and that their money will continue to work for them for the rest of their lives are able to enjoy their retirement years without constantly worrying about income. Senior Education Counsel encourages seniors and those nearing retirement to learn more about their options, including the potential for annuities, before they settle down into their retirement years.