The purchase of a fixed annuity may be a hard sell, given today’s ultralow interest rates. But that doesn’t mean investors who are worried about the negative effect of a volatile market on their savings shouldn’t consider these investment vehicles.
When you buy an immediate income annuity, you essentially skirt two big retirement risks: first, that a market crash will destroy your savings, and second, that you'll outlive your money.
The problem is that insurers base monthly payments on current interest rates. If you buy now, when rates are low, you lock in a lower payout than you would if you bought when rates were higher. So the question is: will a fixed annuity pay you enough?
The answer depends on how much you've saved. While an annuity can protect you from running out of money, it isn't a solution if you haven’t saved enough.
If you are concerned about a market crash or fear you may outlive your money, one strategy is to use a portion of your retirement savings to purchase a fixed annuity that will generate sufficient income to cover your fixed monthly costs – such as housing and utilities.
It’s likely that annuities may soon become more available, thanks to rules proposed by the U.S. Treasury and Labor departments that encourage more employers to offer annuity options in retirement plans. So you may want to give them a second thought.
I or your advisor can help you determine if annuities are right for your and can explain your investment options.
