Retirement Annuities: How to Bridge Gaps in Your Retirement Finances header image

Retirement Annuities: How to Bridge Gaps in Your Retirement Finances

Life moves fast, and sometimes it may feel like you don’t have enough time to plan for the next stage. Retirement is one life event you can prepare for. Even if you’re years or decades away from retirement, it’s important to make moves now that your future self will thank you for later. What you do now will impact your ability to enjoy this stage of life.

Try to imagine what your ideal retirement looks like. Does it include traveling, spending time with grandchildren, mastering a beloved hobby or volunteering at a favorite organization? Whatever your post-career dreams include, you’ll want to think about ways you can generate retirement income streams outside of Social Security and your retirement account(s) to help fill the income gaps.

There are several strategies that may work for you. Annuities are one option to help generate a steady retirement income stream.

What Is an Annuity?

An annuity is a financial product sold by a life insurance company and is designed to pay a steady stream of income in your retirement years. Annuities can be an important piece of your retirement strategy.

Phases of an Annuity

An annuity is made up of two phases — accumulation and distribution1. During the accumulation phase, you contribute to your annuity. The second phase is the distribution phase. The distribution phase occurs when you decide to receive both principal and interest from your annuity. You can begin receiving retirement annuity payments upon reaching age 59 ½ (any earlier and you could be charged penalties). It’s up to you how you’ll be paid — one lump sum, annually, quarterly, etc. — and you can also decide how long you’ll receive your retirement annuity payment with options ranging from one-time to lifetime.

Benefits of an Annuity in Retirement

Not only can an annuity provide a steady stream of income in retirement, but it also offers tax advantages. The tax advantages of an annuity can help you maximize your future funds. Earnings accumulate interest on a tax-deferred basis, so you don’t pay income tax on your earnings until money is withdrawn, which typically happens at retirement, when your tax bracket may be lower. Because your contributions will grow on a tax-deferred basis, your money is allowed to grow more quickly over time.

Types of Annuities

When it comes to choosing an annuity in retirement, you can pick a fixed annuity or an indexed annuity. A fixed annuity offers a fixed interest rate ensuring your balance will grow at a steady rate, whereas, an indexed annuity allows you to take advantage of potential gains in the market while protecting you from loss with a guaranteed2 minimum interest rate. Each type has its own unique benefits and deciding which is right for you will depend on things like your age, your risk tolerance and how much you want to invest. Your Farm Bureau agent can help explain the pros and cons of both.

Helping You Reach Your Retirement Goals

When it comes to retirement, you want to be sure you’ll be able to enjoy it on your terms. When you work with a Farm Bureau agent, he or she will get to know you and discuss ways to help you reach your goals. Contact an agent today!

1 Depending on which income payment option is selected and whether the annuity is qualified or non-qualified, you may need to pay federal income tax on any earnings withdrawn from the annuity and/or the principal withdrawn. Also, surrender charges may apply if funds are withdrawn before the annuity’s surrender charge period expires. IRS penalty if withdrawn before age 59½. 

2 The guarantees expressed on this Web page are based on the claims-paying ability of Farm Bureau Life Insurance Company.

Neither the Company nor its agents give tax, accounting or legal advice. Consult your professional advisers in these areas.

Source:

https://www.iii.org/article/annuities-basics


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