Today’s Prep:
We’ve all heard about annuities, but there’s still tons of confusion about them. What are the different types of annuities? And are any of them worth having?
Equipping Points:
Annuities are financial tools, but often people are so put off by them that they don’t even want to hear about them. We want to start by gaining a knowledge and understanding, so we will look at the four different types of annuities in this episode of the Retirement Ready podcast. Then, you can determine whether or not they are right for you depending on your situation.
All four types of annuities provide different options that may or may not fit into your financial plans. When people think of annuities, a lot of people first think of immediate annuities which provide payment for life. The downside is, if you die before you reach the value of what you paid for the annuity, you’ve lost money. In most cases, Eric hasn’t recommended these for his clients.
A fixed annuity allows you some access to the funds and pays a certain percentage for a number of years. At the end of the term, a window opens up to take out the money completely. What you’re looking for is a decent interest rate for a certain amount of time.
A variable annuity is not safe because your money is at risk. Variable annuities have a lot of fees in them and a lot of people don’t understand the fees in the fine print. You have to question, why are you in it? Will you use the benefits and features within the annuity or are you paying for things you don’t need?
The last category of annuities is the fixed index annuity, which is a subset of the fixed annuity. For someone who is looking for protection but still wants growth to combat inflation, this may be an option.
Do any of these types of annuities fit in your financial plans? Listen to the full episode to hear more information about annuities or click on the timestamps below to learn more about a specific type.
1:20 – There are four types of annuities.
2:58 – Immediate annuities are like a pension–payment for the rest of your life.
4:04 – The downside of immediate annuities.
5:05 – A fixed annuity is like a CD.
6:10 – The variable annuity has the worst connotation of the four types of annuities.
9:51 – Finally, the fixed index annuity interest rate is dependent on the movement of an external market index.
Related Resources:
Can Financial Planning Be A DIY Job?
How To Ask Better Financial Questions
Today’s Takeaway:
[spp-tweet tweet=”Annuities are tools. They’re not for everybody, but they can be very powerful if you understand what they can do. –Eric Peterson“]
More From Eric:
The host: Eric Peterson - Contact - Call: (515) 226-1500
Subscribe To The Podcast:
Apple Podcasts - Google Podcasts - Spotify - Stitcher - iHeartRadio - TuneIn
Check out some other recent episodes
Villains of the Financial World
Just like some of these cinematic villains, some of these financial elements may have a bit of nuance and history that can make it hard to label them all good or all bad.
Read MoreUses for Life Insurance
When you’re younger, life insurance is often thought of as an income replacement as needed. But as you get older and into retirement, you might find other uses for life insurance. When thinking ahead for your estate and how it passes to beneficiaries, life insurance can prove to be a useful tool. Currently, the proceeds from life insurance are tax-free. How does that change how you include it in your financial plan? Eric outlines some of the options and benefits life insurance can provide.
Read MoreUnderstanding Financial Risk
What kind of risks do you take in your financial life? As you get less comfortable with things like climbing up ladders and riding on skateboards, you might also become less financially risky. When you enter retirement, how you view your money in the market changes significantly from your working years. It’s important to look at your portfolio to ensure your investments match your risk tolerance.
Read MoreMailbag: What Financial Advice Should I Share with My Grandchild?
Why is retirement planning different than the “good old days” that our parents and grandparents experienced? Things like pensions, Social Security, and even RMD age have changed. Is your financial plan set up accordingly or is it in need of some changes to match?
Read MoreThe Good Old Days
Why is retirement planning different than the “good old days” that our parents and grandparents experienced? Things like pensions, Social Security, and even RMD age have changed. Is your financial plan set up accordingly or is it in need of some changes to match?
Read MoreMailbag: When Should I Retire?
When is the perfect time to retire? One question from the mailbag asks whether retiring now or in two years will make a big difference. Eric explains what you’ll need to consider and what differences you might encounter from a work and lifestyle standpoint. Then, he answers Nancy’s question on how important it is to have a financial advisor in retirement.
Read MoreDiscussing Dave Ramsey and His Core Beliefs
More than likely, you’ve heard about financial commentator, Dave Ramsey. Today, we talk about some of Dave’s core beliefs and how it may differ from those of a licensed financial advisor. While Dave’s tips and baby steps have helped people, it’s worth taking some of his advice with a grain of salt.
Read MoreThe Voice of Greed
What does the voice of greed sound like? We hear a lot in the financial space, some of it sound advice, and some of it just plain greedy (and even risky). There’s a time and a place for risk, but it comes down to planning. Not all of your money should have the same risk profile. Working with a financial advisor can help you determine how much risk is good vs. having safety.
Read MoreThe Financial Guessing Game
Sometimes we fall into playing the guessing game when it comes to our finances. For instance, how much do you really need in retirement? Instead of grabbing at arbitrary numbers, first think about how much you spend. Some of your expenses may change in retirement compared to your working years, but plan for your needs based on your expenses and your goals.
Read More