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Traditional Pensions have become increasingly rare in today’s world, but that doesn’t mean you can’t generate you own stream of income at retirement that is guaranteed to last as long as you live. It also can be a tax-advantaged alternative for one’s safe money.
Annuities are contracts between you and an insurance company that offer future income in exchange for current assets. Depending on the type of annuity you choose, you can earn a fixed rate every year, an indexed return, or opt for variable returns by participating in professionally managed portfolios of stocks, bonds and other securities. Many of these annuities offer a guaranteed 5-6% return on what is called the income base which is used to calculate the percentage amount of what one can withdraw for life, thereby reducing the impact of market volatility on one’s retirement nest egg. Either way, your assets grow tax-deferred until you withdraw them or begin taking income payments.
Annuities can be purchased with either non-retirements assets or with qualified plan assets such as one’s 401-K and IRA plans.