As you near retirement, you are probably thinking about where your income is going to come from when your paychecks stop. Some people plan to rely on their 401K or pension, while others choose to plan ahead with their IRA. When it comes to thinking about your retirement, there are many options that will generate cash flow. What are annuities and who should take advantage of them?
Depending on where you look, you will find different definitions of what an annuity is. To set the record straight, Annuities are a type of investment vehicle that recreate the income that once was your paycheck. In fact the most common annuity is Social Security. You pay into Social Security your entire life, and during retirement you get a fixed sum of money each month.
In North Carolina, you are eligible to put up to $5,500 annually into an IRA ($6,500 if you are 50 or older); as well as, $18,000 annually into your 401k. If you have maxed out your contributions to your 401k, IRA, and other tax-deferred or exempt accounts, it may now be time to consider investing in annuities. If you have additional capital to set aside for retirement, annuities are a great option to help you save on taxes. This may not be for everyone but it's a good strategy.
There are many different types of annuities. These are just some of the many different forms an annuity you can invest in. Different retirement plans combine these annuities differently depending on the needs and goals of the individual.
An advantage of immediate annuities payouts typically begin one month after the account is opened. These types of accounts are great if you are just about to retire. Immediate annuities frequently payout monthly; however, it is posible to adjust the schedule to your needs.
A deffered annuity is a taxed-deferred account that can grow until you withdraw the funds. Once you withdraw, returns are taxed as ordinary income. The benefit of this type of account is it continues to earn returns even after it begins paying out. It is similar to an IRA or 401k.
With a fixed annuity, you will receive a set payment each month regardless of how the market is doing.
Depending on how the market is doing, a variable annuity will payout more or less than average. The amount you receive is co-dependent upon the market at the time.
One of the best way to utilize an annuity is to cover your income gap in retirement. Your income gap is the difference between the fixed money you receive such as pensions, social security, and other forms of income and your monthly budget. The extra cash will allow you to take care of your monthly expenses without spending savings.
Annuity fees will vary based on the type of account. If you are considering an annuity, we encourage you to reach out to a fiduciary advisor, whom by law has your best interest in mind. We can help you by matching you with the right advisor. Simply click "Find Match" go through the questions and recieve your match instantly!
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