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How To Decide Between Immediate and Deferred Annuities in Chicago
Immediate Annuity RatesAn immediate annuity is one of the two main kinds of annuities you can choose from when planning for retirement.
What is an immediate annuity?Immediate annuities are the annuity option where you immediately start getting monthly payments from your insurance company after selecting a certain amount of your savings toward the annuity. These annuity types are certainly affected by inflation, which can make them a somewhat risky retirement solution. When it comes to immediate annuities, you can either have a fixed monthly payment rate for the lifespan of the annuity, or you can opt for a variable monthly amount, which is ultimately based on your investments in the annuity.
When should you consider an immediate annuity?There are a few different cases where an immediate annuity is the most beneficial option for your personal situation. If you’re unsure when investing in an immediate annuity makes sense, we’ve listed a few situations below:
- If you’re about to retire and are near the legal retirement age.
- If you’ve determined you don’t have enough savings in your retirement plan to sufficiently support your lifestyle.
- If you need a steady retirement income on top of your social security payments and other investments.
- If you’re worried about living longer than you initially saved for.
- If you don’t have any means of support (such as family members) if you were to run out of retirement savings.
- If you’re worried about your spouse receiving a steady income if you were to precede them in death.
Deferred Annuity RatesA deferred annuity rate is the other of the two main kinds of annuities you can choose from in regards to retirement planning.
What is a deferred annuity?Deferred annuities are for those who like to plan ahead, as this is the annuity option where you invest one or multiple sums with your insurance company before your planned retirement date. This gives your investments in the annuity the opportunity to grow, tax-deferred. After you retire over the age of 60, the size of your annuity portfolio will determine how much your monthly payment amounts will be.
What are the three types of deferred annuities?There are three types of deferred annuities for you to choose from for your retirement planning strategy.
- A fixed-deferred annuity. Basically, this is when your investments are placed in a low-risk asset portfolio, where they get a guaranteed annual rate of return until you retire.
- A variable-deferred annuity. This annuity is determined by stocks and bonds you invest in, usually offered by your insurance company.
- An equity-index annuity. When you opt for this type of deferred annuity, your investment will be determined by a broad stock index, such as the Dow Jones. The bright side of this annuity is that your insurance company will usually ensure you with some sort of return on investment, as they typically offer protection from worst-case scenarios such as market declines.
When should you consider a deferred annuity?There are many different scenarios when a deferred annuity is the best annuity option for you to select. We’ve listed a few of those below:
- If you’re under 40 years old and are planning for retirement.
- If you are in a profession or life situation where you could be at risk for a lawsuit (i.e., you’re a doctor or lawyer, you have the potential for a divorce, etc.) Most states have laws implemented where annuities are protected from any claims for or against your financial assets.
- If you want to get out of a less-than-great annuity through a 1035 exchange, which gives you the ability to transfer the cash value of one insurance product to another — penalty free.