An annuity can be a great source of guaranteed income for your retirement. With many different options available, it is important that you work with a trusted advisor as it can be a complex financial decision you have to make.
When being offered a choice between a lump sum from your employer, and an annuity, always compare that annuity to what may be available on the open market. The right choice varies for everyone given individual circumstances and what you’re being offered. Some annuities from employers don’t account for inflation and are equipped with low interest rates (especially in today’s market) among other things. Tax consequences must be taken into account as well. Making the right choice for you, whether it be taking the lump sum and investing it, receiving your employer’s annuity option or purchasing another annuity, is one example of how complex the decision-making process can be when it comes to annuities.
If you’re married, then it’s very prudent to consider taking a joint and survivor annuity payout rather than on your life only. Particularly if you are the higher-income earner, a joint and survivor annuity payout option may be more practical for you as it will help your spouse offset the loss of annuitized income when you pass. A single life annuity will not provide any income to your spouse if you predecease them, but a joint and survivor payout will. This can still provide you with benefits while you’re alive and continue providing your spouse with income payments if you pass, often for the rest of their life.
If you don’t like your insurance policy, and have a potential gain if you cash it in, then you may want to consider a Section 1035 Exchange. A Section 1035 Exchange allows you to avoid tax consequences when replacing an outdated policy with an improved annuity or life insurance policy. Be sure that you understand the rules associated with this exchange as the IRS will not allow tax-free treatment if you cash out of one contract and take the money to a new contract.
These are just three potential situations you may find yourself in, and as you can see, the decisions you ultimately make will impact your life in retirement. Click HERE to learn more about guaranteed income in retirement, and don’t forget to download your complimentary retirement solutions guide!
It’s important to note: Annuities are not appropriate for all investors, and it is important that you discuss these products with a trusted advisor to determine if an annuity is right for you.