Blog Post Retirement Planning

With annuity companies offering more benefits than ever, consumers and investors have the opportunity to reap significant rewards. In the current interest rate environment, these companies can afford to offer higher income bonuses right from the start, impressive participation rates, guaranteed returns, and limited downside risk due to market losses. This means you can enjoy guaranteed lifetime income and legacy protection when the risks of market volatility have been mitigated.

Annuities are no longer the rigid, one-size-fits-all products they once were. Today’s annuities are designed to fit various financial goals and personal situations. High-income bonuses, often starting from day one, are particularly attractive. These bonuses can boost the initial investment, providing an immediate benefit that enhances the overall value of the annuity.

Moreover, the promise of guaranteed returns is a substantial draw. Annuities may offer a safe haven for those wary of stock market volatility, which can be beneficial for retirees or those nearing retirement who cannot afford to see their nest egg shrink due to a market sell-off.

It’s important to remember that not all annuities are created equal. While most annuities safeguard against a market downturn, some annuities are designed for as little as 5 years versus a 10-year contract. Having the protection and guarantees of an annuity could allow investors to take on more risk in other allocations of their portfolio. This strategic use of annuities can balance an overall investment strategy, providing both security and growth potential.

However, it’s important to consider the potential drawbacks and risks associated with annuities. One of the primary concerns is liquidity. Annuities often come with surrender charges, which are fees imposed for withdrawing funds early. While many annuities provide penalty-free withdrawal options during the surrender period, planning appropriately to minimize this risk is crucial. Understanding each annuity’s specific terms and conditions is also essential, as they can vary significantly.

Another consideration is the cost. Annuity fees and costs can differ widely across different products and companies. These may include administrative fees, mortality, and expense risk charges, as well as fees for additional features such as income riders. While some annuities have low or no fees, others can be more expensive. It’s essential to compare these expenses and understand how they impact the overall return on your investment.

The tax implications of investing in annuities are also an important factor to consider. Annuities offer tax-deferred growth, meaning you won’t pay taxes on the earnings until you start making withdrawals. However, withdrawals are taxed as ordinary income, which can be higher than the capital gains tax rate. Additionally, if you withdraw funds before age 59½, you may incur a 10% IRS penalty. A clear understanding of these tax implications and how they fit into your overall financial plan from the outset will help you avoid unnecessary costs.

The majority of Americans save for retirement to create an income stream that replaces their working income. Annuities can increase the probability of your hard-earned money outliving you. One critical reason to consider an annuity is to protect against Sequence of Returns Risk, which refers to the risk of receiving lower or negative returns early in retirement. Most Americans cannot afford negative returns, especially in the early retirement years. This risk can severely impact a retiree’s financial stability, making the guaranteed returns of annuities an appealing solution.

The good news is today’s annuities are highly competitive, offering more benefits and giving you access to your invested principal, up to a certain percentage, without restriction. Fees have dramatically decreased, and in some cases, there are no fees at all. With over 400 annuity strategy options from more than 45 carriers, there is likely an annuity that fits your unique financial goals, with some designed to maximize guaranteed retirement income and others to maximize cash value growth with protection. Whether your objective is to ensure a steady income stream, protect against market downturns, or preserve your principal while still gaining returns, there’s an annuity tailored to meet those needs.

Incorporating an annuity into your retirement plan could be a wise decision. Annuities could offer security, flexibility, and the potential for a higher income stream in retirement. They can play a crucial role in achieving a secure and comfortable retirement by providing a stable income, protecting against market losses, and ensuring that your savings last as long as you do. But to do it successfully requires working with an advisor who is well-versed in annuities. They can help you explore the best annuity options for your situation, guide you through the various types of annuities, help you understand the benefits and limitations of each, and assist in selecting a product that aligns with your retirement goals.



The information contained herein is (1) for informational/educational purposes only, (2) is not a recommendation to buy or sell any investment, and (3) should not be construed or acted upon as investment advice. The information contained herein was obtained from sources we believe to be reliable but is not guaranteed as to its accuracy or completeness.

Past performance is no guarantee of comparable future results. No guarantees expressed or implied. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. Investing involves risk. Investors should be prepared to bear loss, including total loss of principal. Diversification does not guarantee investment returns and does not eliminate the risk of loss. Fixed insurance and annuity product riders, features, and guarantees are subject to the claims paying ability of the issuing company.

This information does not constitute legal or tax advice. PCIA and its associates do not provide legal or tax advice. Individuals should consult with an attorney or professional specializing in the fields of legal, tax, or accounting regarding the applicability of this information for their situations.

Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., Suite 150, Overland Park, KS 66211. PCIA doing business as Prime Capital Wealth Management (“PCWM”) and Qualified Plan Advisors (“QPA”). Certain services may be provided by affiliates of PCIA.