Retirement 2024: 4 Reasons To Build a Diversified Portfolio With Annuities
Retirement plans such as 401(k)s and IRAs are often invested in stocks and bonds, which grow wealth over time. However, financial experts suggest you also want to be sure that annuities are part of your retirement plan in 2024 for a diversified portfolio.
Check Out: I’m a Financial Advisor — I’d Invest My First $5,000 in These 6 Stocks
Read Next: 6 Genius Things All Wealthy People Do With Their Money
Annuities, essentially, are contracts sold by financial institutions designed to pay out income — and they come in several varieties, including fixed, variable, and indexed, according to Jon Crist, founder of Prestizia Insurance.
There are Multiple Types of Annuities
Fixed annuities, Crist said, promise to pay a guaranteed interest rate on your investment, making them a stable but somewhat inflexible option.
Variable annuities allow you to invest in various funds, offering higher potential returns with greater risk.
Indexed annuities strike a balance between the two, linking earnings to an index like the S&P 500, with some measures to protect against loss.
Learn More: 10 Valuable Stocks That Could Be the Next Apple or Amazon
Annuities Can Provide Guaranteed Income
“One of the main reasons annuities can be a valuable part of a retirement plan is their ability to provide a steady, guaranteed income stream for life,” Crist said.
This is particularly important as people live longer and need to ensure their savings last.
“Unlike other retirement savings vehicles, annuities remove the guesswork of how much you can safely withdraw each year because the payouts are determined up front,” he explained.
Annuities Can Protect Against Outliving Your Savings
Moreover, with options like longevity annuities, you can further hedge against the risk of outliving your savings by having income that doesn’t start until later in life — say age 85 — ensuring financial security in your later years.
Annuities Are Not Subject to the Whims of the Market
Perhaps the best reason to invest in annuities is that, in comparison to stocks, bonds, or real estate, annuities offer income continuity regardless of market fluctuations.
“This provides retirees with peace of mind, knowing part of their income is secured. Additionally, when properly structured within a broader financial plan, annuities can offer tax-deferral benefits, enabling individuals to potentially reduce their taxable income in retirement,” Crist said.
Combining annuities with other retirement savings can create a more resilient financial safety net, one diversified against market risks and life uncertainties, Crist suggested.
“Always, the key is finding the right balance and the annuity product that aligns with one’s specific financial goals, risk tolerance, and retirement timeline,” he said.
Considerations Before Investing in Annuities
However, before investing in an annuity (or any investment), Jennifer Aube, CFP and vice president of Wironen Aube Wealth Management, said it is important to consider the following factors:
1. Investment objectives and investment time horizon.
2. The investment choices offered and their long-term historical performance.
3. The reputation of the portfolio managers of the different sub-accounts.
4. The financial strength of the insurance company.
5. How the death benefit is determined.
6. How easily you can withdraw money during the accumulation period, and the income payout options offered.
7. Total fees and expenses.
Like most major financial decisions, don’t try to figure annuities out on your own — seek the help of a retirement professional.
Clients should set up a consultation with a financial advisor to determine if an annuity is appropriate for their retirement portfolio and in alignment with their personal financial situation.
This article originally appeared on GOBankingRates.com: Retirement 2024: 4 Reasons To Build a Diversified Portfolio With Annuities
