How often do you think about retirement?
In reality, we are experiencing a retirement crisis.
The Federal Reserve report found that around 38% of people between the ages of 18 to 29 have absolutely nothing in retirement savings. And, that’s also true for 27% of people between the ages of 30 and 44.
About 17% of the 45 to 59 age brackets have nothing set aside for retirement, either, so it isn’t just Gen Z and Millennials. And for those over 60? 12% of people in this demographic also lack a retirement fund.
If you do have a retirement plan, like a 401(k) from your employer or a self-employed option, such as a Solo 401(k) or SEP IRA, that alone likely will not suffice in terms of liveable income. You will need several different options for retirement savings in order to reach the desired destination. One of the most appealing retirement plans to examine is an annuity.
Annuities: what are they?
TIAA, which describes itself as a unique financial partner, posed an interesting question in its “Lifetime Income Survey” a few years back: Would you rather receive a lump sum of $500,000 or $2,700/month for life? 62 respondents went with the monthly income.
But why? Half-a-million dollars cash seems like a great deal.
“A steady stream of income in retirement helps cover your expenses, no matter how long your retirement lasts,” said Ron Pressman, chief executive officer of Institutional Financial Services at TIAA. “Lifetime income helps ensure Americans have the financial security they need in their retired years – it’s not a ‘nice-to-have,’ it’s an absolute necessity.”
The survey also showed that 71% of people “support legislation to make it easier for employer-based retirement plans to include lifetime income products, such as annuities, as investment options.” And, 67% “favor legislation that requires retirement account statements to include an estimate of monthly income in retirement.”
So... what exactly is an annuity?
Annuities are a contract between you and an insurance company. You give money to an insurance company and they will invest that money for you. In return, you will be guaranteed a retirement income for the remainder of your life.
Annuities have been around for thousands of years, dating all the way back to Ancient Rome. Annuities reached America in the early 20th century.
Annuities are both simple and complex. Depending on which type of annuity you chose and how much you’re investing, payouts will also fluctuate.
Here is an overview on how annuities work.
There are two types of annuities to choose between. A fixed annuity is a savings account with an insurance company that has a guaranteed payout. A variable annuity is more like a mutual funds account and is determined by how your investments are performing.
There are also different ways you can put your annuity together.
● Single vs. Multiple Premiums: How do you want to pay for the annuity? You can make one big payment, or make smaller payments throughout the years.
● Immediate vs. Deferred: When would you like to receive payments? You can cash everything out at retirement or practice self-gratification and receive payments along the way.
● Lifetime vs. Fixed Period: How long will your annuity payments last? Do you want to receive money for the rest of your life or for a specific timeframe, like 5 to 25 years?
Overall, annuities require commitment and can get complicated. It is best to learn more about them from trusted online sources or your financial advisor.
Are there any disadvantages to annuities?
Annuities have some excellent advantages -- depending on the type. Primarily, that’s because you’ll receive a guaranteed income, which is tax-deferred. Also, unlike a 401(k) or an IRA, there are no contribution limits, and you can pass what is left to a beneficiary.
There are also some downsides to mention. Most notably, it is important to pay close attention so that you do not get overwhelmed by fees. The person selling you the annuity takes commission, and there are insurance charges and investment management fees. There are also surrender and rider charges if you are not being attentive.
Besides being pricey, there is also some risk involved. Because annuities aren’t backed by any national insurance program, if you picked the wrong insurer, you might be in a sticky situation. That is why it is important to make sure that the insurer has a financial-strength rating of A or better.
Should I actually buy an annuity?
It depends. If you have maxed out your other retirement investment methods, such as 401(k) plans and IRA, then you could take advantage of the tax-deferred growth from an annuity.
Annuities can also be a great idea if you want to diversify your retirement portfolio, are in decent health and want to reduce financial stress in retirement. The top selling point is that you’ll receive a monthly payment for the rest of your life. That makes budgeting much easier.
You can purchase annuities from;
● Annuity distributors. I’m talking about large brokerage firms here, think Merrill Lynch and Morgan Stanley.
● Independent broker-dealers, such as Raymond James.
● Well-known national banks like Bank of America.
● Mutual fund companies including Vanguard and T. Rowe Price.
● Independent agents, brokers, and financial advisors.
There’s also a new player called Due who might have upped the annuity-ante.
How Due is Changing the Annuity Game
Due has been around since 2015. Initially, Due only focused on being a top-notch invoicing platform. The company still offers a wide range of payment options, including eCash, eChecks, and ACH, but has now expanded into an annuity and pension-like program to help people retire.
Due is helping to simplify the annuity conversation.
While more retirees would prefer and even be happier with an annuity, few actually did. There are several reasons why. It really comes down to annuities being complex and misunderstood.
With Due, the process couldn’t be any more straightforward.
● Head over to Due.com and click sign-up.
● Fill in the required information and determine how much money you’d like to deposit into your account each month. It literally only takes a couple of minutes to do this.
● This quick annuity calculator can help you quickly figure out how much to invest. Just add the sum of all the payments and interest received. Next, divide this up among the months you’ll live. You can invest however much you want, though.
● Due will then set up an account in your name and invest your money. It's managed by two of the top investment firms in the nation: Blackstone (NYSE: BX) and ATHOS Private Wealth.
● You’ll earn 3% interest (guaranteed) on whatever money you have placed in the Due platform.
● When you turn 65, you’ll receive a “deposit” into your bank account on either the 1st or 15th of each month -- you get to choose the date.
Due Annuity sounds too good to be true. What’s the catch?
There is no catch. The platform tells you how much money you’ll receive for the rest of your life at any time. And, you don’t have to lose sleep over changing markets because, again, you will always earn 3% interest.
You also don’t need to be concerned about security. Due has received regulatory certificates and only works with highly reputable insurance companies who have A++ or AAA ratings.
Due charges $10 a month. That’s it. If you make a withdrawal before 65, you will have to pay a 10% penalty fee.
You can withdraw money just by logging into your account and requesting a withdrawal. After verification, you should have your money within five business days. Just remember about that 10% penalty fee.
Due has taken the complexity out of annuities. More importantly, it’s also made it accessible for the average person, not just the wealthy.
Due is here to help you with your annuity plans.
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