As more Baby Boomers close in on their ultimate retirement date, the dilemma of how to offer them choices for cashing out their retirement accounts becomes a pressing issue. I’ve seen many employers design their plans to pay out a lump sum only – leaving the retiree to figure out how to structure their income on their own. Others allow their employees to take partial distributions or periodic payments that draw down their plan balance. But the downside to these options is that once you have spent your entire balance, your retirement income stops.
That’s where annuities fit into the retirement planning picture. Only a minority of plans offer annuities as a plan distribution option; however, fixed annuities can provide a fixed monthly payment around which you can build a steady retirement income, much like your preretirement paycheck. More importantly, you cannot outlive an annuity so the monthly payments will continue – even if there’s a severe market downturn or if the payments you receive outspend the account balance used to purchase the annuity. Payments can also be structured to last not only for your own lifetime, but the lifetime of a survivor, or just for a certain number of years.
There are definite advantages to annuities that may make them a suitable choice for A PORTION of your total retirement income, but there are some downsides that purchasers need to be aware of before incorporating them into their retirement planning. Fixed annuities have an upfront cost that will reduce the guaranteed payment amount. Variable annuity payouts depend upon investment performance and may have high investment costs and commissions built in. And if you select an annuity and don’t live long enough to recover all you spent, there may be no way to get the excess amount back.
Constructing a retirement income comes from a combination of sources: Social Security, pensions, after-tax savings and retirement plans. By designing your plan to offer employees the most flexibility in their payment options, you give them the best option for creating a retirement income that will last through their entire retirement.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advisory services offered through Global Retirement Partners, LLC, a registered investment advisor. Global Retirement Partners, LLC, Frenkel Benefits, LLC, and LPL Financial are separate and non-affiliated companies.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
Fixed and Variable annuities are suitable for long-term investing, such as retirement investing. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply. Variable annuities are subject to market risk and may lose value.
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