As we get older, our priorities, obligations, and risk tolerance change. When getting closer to retirement, affluent savers and savvy investors should address these concerns and find a way to minimize losses and mitigate often overlooked risk factors. It is very important to get ahead of these changes if you want to protect your future and your retirement.
Higher risk does come with a bigger reward, but when planning for retirement, you can't disregard that a severe market adjustment can derail your plans. Aside from stock market risk, taxation, and regulations are also big concerns. If you want to know how to address these risks, follow the links and read our article on “Safer Investments for 2022,” and “Taxation and Retirement.”
Mitigating Longevity Risk.
People today are living longer, and there is a significant risk that is often unaddressed. With medicine and science improving, it is essential to plan to address longevity risk. Will your retirement plan provide you or your spouse with enough money for all your future needs?
Other than making sure we have enough money for retirement, we also need to make sure we have enough to last us through it, and the best way to mitigate the possibility of running out of money is to develop an income for life strategy.
Indexed Annuities are financial products issued by insurance companies that allow owners a way to secure their future income stream. Annuities provide owners an option that they can elect, providing income for life.
Funding an Indexed Annuity.
Indexed annuities are traditionally funded in two ways, the first method is a purchase with a single premium payment and the second method, with multiple premiums paid over time. The money will have to be kept in the annuity for a specified time and once funded, owners will earn interest based on the movement of an elected market index. Can you see the great earning potential now?
Although annuities provide many benefits, there are some tradeoffs. Be aware, if the funds are withdrawn prior to the set term chosen, owners will face surrender charges. Because of this, it is best to speak to a licensed professional for a full financial analysis before making any decisions. If you want to schedule an appointment with our team, we are willing and ready to help address your concerns and solidify your plan for retirement.
The Benefits of Indexed Annuities.
Let's take a deeper look at the numerous advantages of owning an indexed annuity. Since an Indexed Annuity's growth is based on a market index (and not really invested in the market), owners can benefit when the market is up and have a zero floor protection when the market is down. This means annuity owners will not lose money when the securities market is in a downturn and underperforming, but when it is doing well, owners can reap the benefits.
Another benefit to owning an indexed annuity is that it comes with certain tax advantages. Since most annuities are funded with post tax dollars, only the interest earned is taxed, as opposed to tax deferred vehicles. This is important to know since taxation later in life can be more costly than what it is today, especially when using deferred vehicles like 401k, 403b, or 457 plans.
Access and the Surrender Period.
As mentioned before, if annuity owners decide to withdraw their money prior to the end of contract or the surrender period the owner will have to pay a surrender charge and depending on the age of the owner, they may also have to pay a tax penalty imposed by the IRS. But most people don't know, most insurance companies actually allow owners up to a 10% withdrawal without facing surrender charges (depending on the age, owners may still have to pay an IRS tax penalty). Although it may seem like a big imposition, the IRS imposes these guidelines as a way to deter savers from depleting their retirement funds. Because this tax law exist, it is important for affluent investors to create a tax advantaged solution and an efficient tax plan.
Annuitization or Guaranteed Withdrawals for Life.
At retirement and maturity of an annuity, owners generally have the options to cash out. They can either take distributions for a set period or elect an income for life income stream.
Annuities that are funded with post-tax dollars, you will only be taxed on the earnings as opposed to tax deferred vehicles which are fully taxable.
A Solid Strategy and an Income Stream for Life.
Because of many different influences and risk factors, it is essential to create both a tax advantaged plan and an income for life strategy. Indexed Annuities can help strengthen your financial plan to help achieve financial security.
If you're interested in learning how to navigate challenges in retirement, our team is here to serve you. Schedule strategy session today.
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