Your 50s may be spent balancing work responsibilities, strengthening relationships with adult children, and getting to know your grandchildren. Despite the busyness of this decade, it’s also a time to get serious about retirement planning. Fixed annuities offer a guaranteed, predictable income with many growth and tax benefits, making them an excellent addition to most 50-somethings’ portfolios. Learn why you might consider adding a fixed annuity to your retirement plans.
What Is a Fixed Annuity?
A fixed annuity is a financial product that allows you to invest now in return for guaranteed monthly income payments at a later date, usually in retirement. Fixed annuity contracts offer a set rate of return regardless of market performance. Fixed annuities are an excellent option for investors in their 50s looking for safer investment options that ensure reliable income they won’t outlive in retirement.
Fixed annuities differ from other annuity types because of their guaranteed returns. Unlike a variable annuity, you’ll receive a set rate of return whether or not the market does well.
6 Reasons To Consider a Fixed Annuity in Your 50s
Here are six reasons to consider a fixed annuity in your 50s:
- Growth Potential
Fixed annuities allow you to invest with minimal risk. Unlike other investment types, fixed annuities aren’t subject to market performance. Volatile stock markets can be dangerous to those in their 50s as they near retirement. Ups and downs are expected in the stock market, and a significant downswing right before retirement may make it difficult to recoup your losses with other investment types.
A fixed annuity, however, offers a guaranteed rate of return regardless of recent market performance. Your principal, which is the money you initially invest, is never at risk with a fixed annuity.
- Deferred Tax Benefits
Most fixed annuities are tax-deferred, which means you won’t owe taxes until you begin collecting payments. This means you can deposit more in the account now, allowing you to accumulate more and benefit from compounding interest. If you’re retired by the time you begin collecting payments, your income may be much lower than it is while working, meaning you’ll owe less in taxes.
- Simplicity of Investing
Fixed annuities are relatively straightforward to understand, making them an excellent addition to your investment portfolio. Risk tolerance is essential at every age but may be even more important in your 50s. Riskier investments in your 50s can be dangerous because you may not have enough working years to make up the losses after a significant one.
Because fixed annuities aren’t dependent on market performance, they make an excellent diversification tool for investors closer to retirement. The simplicity of fixed annuities also means you don’t have to spend a lot of time near or in retirement calculating interest rates or deciding when to withdraw funds. Instead, you can focus on enjoying all the freedom that comes with no work responsibilities, like spending valuable time with grandchildren or improving your golf game with friends.
- Predictable and Guaranteed Income
Fixed annuities can provide predictable, guaranteed income, making them an excellent option for those in their 50s. Americans are living longer on average, meaning you may need more than initially planned to live out your retirement comfortably.
Additionally, many fixed annuities offer lifetime income guarantees. This means you’ll be eligible to collect payments for life, so you don’t have to worry about outliving your benefits. This predictable income makes it easier to plan for the costs of life after retirement, including assisted living, healthcare, or travel. Predictable income can also help you supplement other unexpected costs that may come up, like assisting a child with college tuition or caring for grandchildren.
- Flexible Payments
Another benefit of fixed annuities is their flexibility, allowing you to choose when to begin receiving payments. You may choose to begin collecting payments as soon as you retire or wait a few years until other retirement sources run out. Depending on your fixed annuity contract, your benefits could also easily transfer to your beneficiary, allowing them to avoid probate. Your spouse, surviving child, or other designated beneficiary will continue receiving the guaranteed monthly income payments.
- Emergency Option
While planning for retirement is essential, plans don’t always go accordingly. One of the benefits of a fixed annuity is that it’s somewhat liquid. Unlike other investment types, most fixed annuities do allow you to withdraw some of your funds. You may be subject to penalties or extra fees, but access to this money may be valuable during an emergency.
Whether you’re celebrating your milestone 50th birthday soon or are in your late-50s, a fixed annuity is worth considering. With minimal risk, guaranteed income payments, and flexible payment options, fixed annuities provide many benefits. Supplementing other retirement planning tools with a fixed annuity can ensure you enjoy a comfortable and long retirement.