Annuities

Annuities are often used as a tool for guaranteed income in retirement

Scott discusses when it does (and does not) make sense to use an annuity in your portfolio.

This week we are talking about Income Planning, specifically annuities. 

Annuities should not be polarizing. The question is not whether they are good or bad, but are they the right tool for the job? Annuities are not a one-size-fits-all solution, but they can be the best tool for the job. 

In what situation does an annuity make sense, and how do we use them? 

The Upside of Annuities 

If you want to have a guaranteed income source in retirement, annuities are the best tool for the job. 

At Carlson, we begin with a thorough planning process. If we know you will need $50k out of your portfolio in ten years to cover your expenses, we do not want to rely on the market doing well to cover those needs. We want to determine how much of that $50K needs to grow at a guaranteed rate and lock in that guarantee with annuities. 

As we develop your Income Plan for retirement, we look at multiple factors which will determine how much we put in. For example, if you do not have a pension and need to draw a significant amount of income from your portfolio, you may need more in an annuity. 

The Tradeoff of Annuities 

No product is perfect, and annuities are no different. The downside of an annuity is liquidity. 

An annuity is a contract with an insurance company. For them to provide the guaranteed income we are looking for, they expect you to leave that money in for a certain amount of time. If that period is ten years, you will pay surrender penalties if you decide to take that money back within those ten years. With annuities, you are trading investment risk for liquidity. 

Through the planning process, we can determine how much of your money would be best in an annuity. It is unlikely that it would be beneficial to put 100% of your money in something so illiquid. If you are looking for the most growth potential possible, annuities are not the right tool for the job, but annuities are a great tool if you need safety and guaranteed income. 

An advisor can help you determine how annuities might fit into your optimal retirement plan.

If you have any questions, please don’t hesitate to call us at 844-CARLSON (844-227-5766).

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