Should You Add an Annuity to Your Retirement Portfolio in 2025?

Có thể bạn quan tâm

Annuities give you a recurring revenue stream in retirement, providing security and peace of mind. Thanks in part to the SECURE Act 2.0, which added the ability to include annuities in 401(k)s, this investment vehicle has grown in popularity among savers.

Bạn đang xem: Should You Add an Annuity to Your Retirement Portfolio in 2025?

A recent survey of non-retired workers conducted by LIMRA, the insurance and financial services industry trade association, found seven in ten non-retired workers were ‘very likely’ or ‘somewhat likely’ to select an in-plan annuity option if it was available. They pointed to the ability to create a lifetime guaranteed income stream as a main reason to add it to their retirement accounts.

With more plan sponsors gearing up to include an annuity component in their offerings, you may be wondering if you should follow suit in 2025. The answer: it depends.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more – straight to your e-mail.

Xem thêm : Premium Brands adds to portfolio with acquisitions

Profit and prosper with the best of expert advice – straight to your e-mail.

Should you buy an annuity in 2025?

If any of this sounds familiar an annuity may be right for you.

1. You’re worried about running out of money in retirement. If you are losing sleep fretting over your nest egg, an annuity can give you peace of mind and a good night’s sleep. With an annuity you enter into a contract with an insurance company and make payments over a period of time. That money is invested and paid out to you at a later date either as a lump sum, monthly or annual payments over your lifetime.

Annuities that guarantee income for your lifetime are either immediate or deferred. “Guaranteed income annuities (immediate or deferred) are the only financial products that can do this,” says Kevin Nuss, founder and CEO of AnnuityAdvantage, an online provider of fixed-rate, fixed-indexed, and lifetime income. “We sometimes call this creating your own personal pension.”

An immediate annuity is typically purchased with a lump sum and you then begin receiving payments within 12 months or less. An immediate annuity can be fixed or variable. A deferred annuity is designed to grow on a tax-deferred basis, providing guaranteed income to the annuitant starting on a particular date they choose. The savings period for deferred annuities can last from a few years to decades, and the money grows over time.

2. You want to play it safe but with a better return than bank CDs. Fixed annuities tend to outperform bank CDs because they are held longer, giving the insurance company more time to invest and grow the money. Also known as multi-year guaranteed annuities, these annuities have guaranteed interest rates and grow on a tax-deferred basis. Nuss says they are best for savers seeking higher yielding alternatives to bank CDs and bonds, but still want their interest rate and principal to be guaranteed.

3. You’ve maxed out your qualified retirement plan contributions. If you’ve maxed out all of your tax-advantaged investment accounts including a 401(k) and IRA and still want to save more for retirement, an annuity can be a tax-smart way. The money in the annuity grows tax free, enabling it to compound at a greater rate. If you contribute with after-tax dollars, those contributions are not subject to any additional income tax upon withdrawal.

Xem thêm : Westover Picks Up Chelsea Multifamily Portfolio For $95M

4. You want stock market exposure and principle protection. Fixed indexed annuities are a safe way to get exposure to the stock market and diversify a retirement portfolio. With a fixed indexed annuity you’re apt to produce higher returns than other fixed-income investments but lower returns than equities.

This type of annuity is particularly attractive to people who are in the preservation phase of retirement savings. “If you want to participate in the stock market upside, but simultaneously guarantee your principal against downside risk, take a look at fixed indexed annuities,” says Nuss. “Most people are aware, as we age…portfolio risk reduction should be a serious consideration.”

5. Your saving sources aren’t diversified. A good rule of thumb for retirement savers, according to Jeffrey Mellone, a wealth advisor at TIAA, is to structure your expected retirement income in thirds: one-third from Social Security, one-third from portfolio distributions, and one-third from lifetime guaranteed income.

Without the guaranteed income you end up with too much risk. “The stocks and bonds portion is susceptible to market fluctuations,” says Mellone. “Lifetime income adds more stability.”

Are there any downsides to annuities?

Annuities have a place in retirement savings but there are downsides that should be considered.

For starters, your money is tied up with annuities. You invest now for a payout later. If you need the money before 59-1/2, that money is taxed as ordinary income and you could get hit with a 10% federal income tax penalty.

There are also fees and commissions. Some annuities may charge fees, such as surrender charges, mortality and expense risk fees, sales and commissions and administration fees. In some cases, coupled with fees and commissions, a rider could further dilute your investment.

Bottom line

Annuities are finding a place in American retirement portfolios thanks to their ability to provide guaranteed income for life. An annuity is protected, can grow tax deferred and provides peace of mind. As a result, annuities are becoming a sought-after component of a diversified retirement plan.

Nguồn: https://earnestmoney.skin
Danh mục: News