Happy Lockdown 4th

By |2020-07-06T15:15:36+00:00July 6th, 2020|Annuities, Retirement Planning|

If you’re retired or very close to retiring and you feel you need more guaranteed income than social security will provide, it can make sense to use a portion of your 401 (k) or IRA money to buy an annuity…-CNN Money

Signed into law in December 2019, the SECURE Act allows small business owners to set up “safe harbors” within their qualified retirement plans. This legislation intended to make qualified plans less complicated, more cost-effective, and easier to implement. Under the SECURE Act, a higher number of part-time workers are eligible to participate in their companies’ retirement plans. The SECURE Act also paved the way for including annuity products in 401(k) and IRA offerings. While fewer than 10% of eligible employers are currently providing annuities as part of their retirement plans, this number is likely to grow. This is because more Americans realize they’ll need guaranteed streams of income in retirement.

If your employer is offering annuities in their plan, should you consider taking advantage of this option?  The answer to this question is, “That depends.”

You must consider several factors before you decide to put an annuity into your 401(k) or IRA and questions you should ask yourself.

Is my age a factor? For younger people, especially those under 50, annuities may or may not make sense. Generally speaking, younger people are willing and able to tolerate more risk.

  1. They could take advantage of other financial options that are more likely to provide the kinds of gains they need in the “accumulation” phase of their financial lives. This is not to say that an annuity is never a good idea for a younger person. But, anyone considering this option must thoroughly understand their risk tolerance and overall objectives. If you are younger, you need to be sure your employer offers the kinds of annuities (if any) that best meet your particular goals and objectives. Deferred annuities that guarantee lifetime income could be the right choice for younger people who understand all the pros and cons. Still, you should always seek the advice of a qualified professional before making that decision.

What are my overall goals? If you are near retirement, you may have the goal of creating a stream of guaranteed income to supplement Social Security.

  1. Nearly everyone believes that Social Security, which is itself a type of annuity, won’t be enough to maintain a decent retirement lifestyle. As with younger workers, pre-retirees need to educate themselves about what annuities do and do not do. Employers may not offer more than primary financial education and little guidance regarding their qualified plans. You should not include an annuity in your 401(k) or IRA just because your HR person thinks it’s a good idea. Instead, seek a qualified annuity specialist’s advice so you will understand all the pros and cons of these products. Most annuity professionals are happy to go over your plan options and provide a valuable “second set of eyes” to guide you in making the right choices. Income planning is a very personal, highly nuanced process that you do not want to undertake all by yourself.

Am I willing to put in some work? One of the unfortunate downsides of employer-sponsored retirement plans is that they are designed on somewhat of a “set it and forget” platform. Most people who participate in employer plans tend to make their selections and only check their accounts a few times per year.

Employer plans are almost always substantial on transactions and light on developing employees’ understanding of the various risks they are likely to encounter as they get ready to retire.

For example, few employer plans educate their participants on things such as longevity risk, the need for protection of principle, sequence of returns risk, and other issues faced by retirees. Understanding these issues is critical for employees to avoid making mistakes in selecting the correct kind of annuity for their plans. If you are considering adding annuities, be sure you are willing to take an active interest in your qualified plan instead of just putting it on autopilot. Remember, today’s modern employer plans put the responsibility for success squarely on the participants, and not the employer.

  1. So, you must be willing to take control of every decision you make. It’s your financial future at stake, after all.

Including an annuity in a qualified plan is now more feasible than ever, I recommend that you do so only after consulting an annuity specialist. He or she is much more educated on the many aspects of annuity products and their ability to solve various problems in retirement. If you’d like to discover more about annuities’ potential to turbocharge your qualified plan and provide you with guaranteed income, contact me. I’ll be delighted to send you everything you need to make the best decisions for your unique situation.


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About the Author:

Donna thrives to make a difference for her clients, by securing their financial needs. Not just focused on Annuities and Life Insurance but with all retirement and financial needs as well. Ensuring a safe retirement for her clients brings her great joy, more joy than any amount of money ever could. Website: advisor4u247.com

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