Worried About Investment Risk in Retirement? Consider An Annuity

We're often asked, "Is an annuity right for me?" The truth is, it depends on your individual situation. Every client’s retirement plan should be as unique as they are. That’s why we go through a thorough retirement planning process to determine the most appropriate investments for our clients. Let’s dive into how annuities can play a vital role in securing your retirement income and mitigating risks.

Securing Your Retirement Income

One of the main benefits of annuities is the steady, guaranteed income they provide, which is crucial when you’re no longer earning a paycheck. There are many types of annuities. Some of the most common are fixed indexed annuities (FIAs), a single premium immediate annuities (SPIAs), and deferred income annuities (DIAs). Each type can help ensure you have a reliable source of income during retirement, but differ in important ways.

• FIAs: These offer a guaranteed minimum return with the potential for additional interest based on a market index’s performance. You get the benefit of some market growth without the downside risk.
• SPIAs and DIAs: Both provide fixed, predictable payments, with SPIAs starting immediately and DIAs starting at a future date. This structure can help cover your essential expenses and plan for long-term income needs.

Protecting Against Sequence of Return Risk

Sequence of return risk is a fancy way of saying that the order of your investment returns can significantly impact your retirement savings, especially if you experience poor returns early on. Annuities can help mitigate this risk by providing guaranteed income that isn’t affected by market downturns.

For instance, whether you choose an FIA, SPIA, or DIA, your payments remain stable regardless of how the market performs. This stability offers a safety net against the potential negative impact of poor market performance early in your retirement.

Adding Stability and Diversification to Your Portfolio

Annuities can be a valuable part of a well-diversified retirement portfolio. They add a layer of security and predictability, complementing other asset classes like stocks, bonds, and real estate.

By including annuities in your retirement plan, you can balance more aggressive investments with the steady income annuities provide. This approach helps create a resilient and well-rounded portfolio that can weather market volatility.

Integrating Annuities into Your Retirement Plan

When we sit down with our clients at Haywood Wealth, we take a holistic approach to retirement planning. Here are a few key steps:

• Understanding Your Goals: We start by evaluating your income needs, investment risk tolerance, and retirement timeline.
• Creating a Balanced Portfolio: We recommend using annuities alongside other investments to create a well-rounded portfolio.
• Tax Considerations: We help you understand the tax implications of your annuity payments and how they fit into your broader tax strategy.
• Expert Guidance: Working with a CFP® professional can help you navigate the complexities of annuities and ensure they align with your overall retirement and wealth management goals.

Conclusion

Annuities can be a powerful tool in securing your retirement income, protecting against market risks, and adding stability to your portfolio. By integrating annuities into a broader retirement strategy, you can achieve greater peace of mind and financial security in your retirement years.

If you’re curious about how annuities might fit into your retirement plan, give us a call at Haywood Wealth Management. We are experienced retirement planners and are here to help you navigate your retirement journey with confidence.