As an investor moves into retirement, their financial priorities will change. Their attention will turn to generating income from investments. The attitude towards risk for the investor should also change, and in general they will begin to move towards lower risk investment. Preservation of their principal is also important to retirees so that they have enough savings to last throughout their lifetime and perhaps their spouse’s lifetime. Retirement annuities are exactly the investment vehicle that is required to help retirees make this transition in financial priorities. Retirement annuities offer them an income stream for life. If a retiree is new to annuities, they will probably be interested in immediate annuities at first. Immediate annuities have no accumulation period and generally begin to payout within one year of the premium payment. One reason why an investor would be looking at an immediate annuity is if they participated in a company contribution plan throughout their working life. They can withdrawal their accumulated proceeds from this plan and purchase an immediate annuity to secure their future income. Although immediate annuities are usually the prescribed payout model for retires, a deferred annuity can also be the recommended retirement annuity in certain circumstances. The trend is that life expectancy is increasing due to advances in healthcare. Another trend is that more and more workers are taking early retirement. In the past, retirees were on average not expected to live a decade past their retirement. Therefore, a deferred annuity was not the ideal product choice since an investor was not likely to live long enough for the annuity to mature. However, although good trends, the early retirement and increased life expectancy demographics make retirement planning more difficult for someone that has recently retired. The likelihood of the average American outliving their retirement savings is become more and more of a possibility. With this in mind, deferred annuities should also be considered as a retirement option by retirees. If for example, someone lives into their 80s, but retires in their late 50s, a deferred annuity may be the correct choice depending on their other financial circumstances. They will live long enough to see their investment mature. When selecting the best retirement annuity, retirees need to consider if they want their spouse to be able to continue receiving a steady income if they die first. It is important for an investor to understand their own needs so that they can select the appropriate retirement annuity contract. Retirees should also consider what the likelihood is that they may need to withdraw funds from the annuity. Some annuity contracts have very high withdrawal fees even if the funds are used for emergency circumstances. In conclusion, as an investor moves into retirement, their financial priorities will change. As their preferences turn to lower risk and income generation, a retirement annuity is the best investment vehicle for them. In the past, immediate annuities were always the recommend product for retires. However, as life expectancy increases and retirement age decreases, deferred annuities can also be the preferred investment product for certain individuals.
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Retirement annuities are exactly the investment vehicle that is required to help retirees make this transition in financial priorities.
For more information from Steven on how to invest in annuities and common investment mistakes, visit his Annuities Investment Guide. To learn more about the retirement annuities, visit the Immediate Annuity and Deferred Annuity Guides.
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