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Although it may be true that current workers lack full confidence that they will have enough money to retire comfortably—according to some experts—it doesn’t mean there aren’t some good strategies out there to maximize income over a period of years. And one of the alternatives is an annuity.
Many workers take advantage of employer-offered retirements plan, such as the 401(k). And some also open individual retirement accounts (IRAs). These encourage people to save and to take advantage of tax benefits: they are both great ways to sock away money for retirement.
But there are limits to the amount of money you can contribute yearly to those plans. And it may be that when you sit down and add up what you think your retirement expenses will be and then add up your income stream for retirement, you will find that your income won’t be sufficient. Working longer is one route that many people take. Another is to put money into a fixed annuity (starting as early as possible), which guarantees* a fixed rate of return, earnings that are tax deferred, and income paid to you according to a variety of different plans. Unlike some retirement plans, there are no limits to how much you can contribute to an annuity.
Since principle annuity contributions are not tax deductible, you don’t pay taxes on them when you start receiving income from your annuity. You do pay taxes on the tax-deferred earnings, but since your retirement tax bracket is likely to be lower than it was preretirement, the tax burden on your earnings is likely to be lower than it would have been earlier. Also, those taxes are spread out over the years you receive income from the annuity rather than having to be paid in one lump sum.
Fixed annuities provide many payout options, from payments for life, post retirement, to payments for a specified period. It’s a good idea to sit with your financial advisor before you choose among the options.
Provided you’ve been able to consistently contribute to your fixed annuity, it’s a great way to provide regular income during your retirement years.
*guarantees are based upon the claims-paying ability of the issuer