Have you invested years or possibly decades building your retirement fund? Perhaps you diligently put part of your paycheck into a variable annuity, mutual funds, or shares every month. Or maybe you built up your retirement fund by improving the equity in your home and now you're prepared to scale down and cash out. Regardless of the way you got to where you are at this time, you have most likely seen the value of your retirement investments fluctuate widely through the years. However it's time to consider how much risk you are prepared to take with your future.
Annuitizing your retirement fund is the equivalent of getting out of the game and cashing in your chips. Usually this implies searching for a steady income and in return abandoning the possibility of hitting the jackpot in the future. But should you take the risk of losing a chance for continued appreciation in exchange for a safe return? The most effective way to answer that question is to take a look at what's going on.
Individuals are living longer. The most recent figures put out by the Centers for Disease Control claim that a 65-year-old individual is predicted to live 17.9 years. Fifty years ago that figure was 13.9 years. Thus the chance of you outliving your savings is higher now than ever before. And further health-related improvements will only improve your odds of living a long, active existence. Annuitization means that your retirement fund will continue to pay you so long as you live. A fixed immediate annuity offers a consistent income which you can't outlive. (Income guarantees are depending on the claims-paying capability of the annuity company).
In addition, income from annuitization may probably be taxed more efficiently and therefore might expand the retirement fund available to spend when compared to other ways of producing revenue. It's because part of the proceeds from an immediate annuity is regarded as a return of your principal. Consequently, it's tax-free. The "exclusion ratio" (the portion of the payments excluded from tax) is determined by your age and the payout schedule you choose. (IRAs and other retirement programs might not qualify for the exclusion. Talk to with your tax professional).
But you do not need to make an all-or-nothing choice about your retirement fund, whether to annuitize it or keep it more traditionally invested. For many retired people, the very best solution would be to allocate part of their retirement fund to a fixed source of lifetime earnings in a retirement annuity and allow the other part to remain invested, say in a balanced portfolio of shares and bonds. By having some of your retirement fund allocated for a lifetime income, it allows you to invest more proactively with the remainder rather than in 1% bank accounts.
You might also like:
Leave a Reply