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Annuities
Why are Annuities a important piece of the retirement puzzle? In our parent's generation most companies provided a pension plan for their workers. These pension plans were called defined benefit plans, meaning that workers and their spouses were given a set amount of income every month upon their retirement from the company. These plans worked well as most workers knew the income that they would have to live on until their death. Over the past 20 to 30 years most companies have gone away from defined benefit plans to defined contribution plans, commonly known as 401k's. These plans are much cheaper for companies to administer but riskier for workers. The 401k was never meant to be a primary source of retirement income but used as a supplement to social security and pension plans. It was meant to be the 3rd leg in the retirement income stool. The problem with the 401k is the retiree can run out of money in there retirement years because of market downturns or simply living to long. This is where the annuity comes into play. With the annuity the owner transfer all market risk as well as the longetivity risk to the insurance company. The annuity will give the owner set payments for as long as they live, no matter how long they live, just like the defined benefit plans of the past, so when you purchase an annuity you are basiclly creating your own pension. These annuities can also give the spouse the same benefit's until their death as well. Annuities can be complex with many moving parts within them. There is also a lot of misinformation about them that can be found on the web. If you are interested in an annuity it is best to talk with your financial professional so that they can advise you. Annuity's work well for most people, but the key is getting the one that works well for you. In my next post we will discuss the different kind's of annuities that you can purchase and the difference's in them. If you have any questions give us a call at 304-253-6112 or 304-673-4621, we will be glad to answer any of your questions.