Income annuities can help you retire worry free with guaranteed income that will last through retirement, never go down, and that you can never outlive. Think of it like a paycheck for life because it provides a guaranteed income stream.
How do annuities work as part of a financial plan?
Whatever you dream of when it comes to retirement, making sure you'll have the money to make it happen is an important part of your financial plan. These days, fewer and fewer companies are offering pensions, and the future of Social Security is uncertain. So now, more than ever, people have to rely on themselves to plan for their finances in retirement. An annuity is one way to make sure your retirement goals stay on track, giving you a steady stream of income that doesn't change based on market volatility and is guaranteed to last the rest of your life.
There are different types of annuities that might be right for you depending on your goals. Income annuities are typically purchased close to retirement and give you predictable income for the rest of your life. Fixed and variable annuities can also help you grow your assets during your working years.
Income annuities give you guaranteed income in retirement.
An income annuity can help you make sure you're ready for whatever life throws at you. It means you won't outlive the income stream and won't have to worry about running out of money in retirement. And it means you won't be at the mercy of the markets or the future of Social Security when you're ready to retire.
You won't lose your money if you pass away sooner than expected.
Many of our income annuities come with an optional death benefit feature to make sure your loved ones will get back at least what you've put into your annuity if you pass away before your income payments start.
Annuities are more affordable than many people think.
Like with all financial products, annuities do come with some costs. But depending on the type of annuity you purchase, it could come with some big benefits like tax deferral, a minimum death benefit, and/or guaranteed income for life. Even better, the income from your annuity will never go down—in fact, some annuities earn dividends, meaning your income could go up over time.
An annuity can give you a guaranteed income stream for a set period of time or for life. Think of it like a pension or a steady paycheck, but instead of coming from an employer, it comes from an insurance company like Northwestern Mutual. There are a few different types of annuities that you can choose from. Income annuities give you a guaranteed, steady stream of income in retirement that will last the rest of your life. Fixed and variable annuities can help you grow your savings for retirement much like a 401(k) or IRA, but there's no annual limit to how much you can contribute. Depending on the annuity, you can fund it with a single lump sum or multiple payments over time. Find out more about how annuities work.
Annuities could be a great option for anyone who wants to plan ahead for the money they'll need in retirement. Here are some examples of who could benefit from owning an annuity:
People looking for steady income in retirement
People who are worried about outliving their savings
People who want to avoid market volatility (non-variable)
Annuities can be a key part of a strong retirement plan. Designing a balanced plan with a mix of financial products—like an annuity and a 401(k) or an annuity and Social Security or all three—can help you get the most out of your savings. Essentially, an annuity can be helpful if you're worried about outliving your savings. This guaranteed income can help you cover essential expenses, maintain your lifestyle, and most important, help you feel financially secure when you retire. Unlike other investment options, annuities will give you a steady stream of income even with swings in the market. Annuities also offer tax advantages as any growth is tax-deferred until withdrawals are made. All guarantees in annuities are backed solely by the claims-paying ability of the issuer.
Annuity income refers to the payments you get from your annuity in retirement. Depending on the kind of annuity you own, it can be taken annually, semi-annually, quarterly, or monthly. Your financial advisor can help you decide what payment structure would work best for your goals. Connect with an advisor.
An immediate income annuity's name somewhat defines it—it's intended for someone who is near retirement because payments begin within a year of purchase. Other annuities are best purchased throughout your working years, based on your life and goals. The right time to buy an annuity is different for everyone. Your Northwestern Mutual financial advisor can help you decide what type of annuity is the smartest option for your plan. Connect with an advisor.
Each annuity is designed to meet specific financial goals in retirement. The main two categories are classified by their purpose—accumulation and income.
Immediate Annuities
With an immediate annuity, you pay a lump sum, and the insurance company starts making payments to you right away, usually within a month.
Deferred Annuities
A deferred annuity allows your money to grow over time before you start receiving payments. You can fund it with a lump sum or multiple payments.
Fixed Annuities
Having a fixed annuity is kinda like having a savings account with an insurance company. While your savings would be liquid and an annuity is not, you get a guaranteed rate of return, and your payments are predictable.
Fixed Annuities
A variable annuity lets you invest in different subaccounts giving you the potential for higher returns. The payments you receive can vary based on the performance of these investments. Keep in mind, all investments carry some level of risk, including potential loss of principal.
While all three are annuities, each solution is distinct from each other. Fixed annuities give you safe and steady interest income at a set rate for a set amount of time that is not affected by market fluctuations. On the other hand, variable annuities give you the opportunity for growth by letting you invest your money in assets like mutual funds or stocks. While it has the potential for higher returns, a variable annuity also has higher risk due to market fluctuations. With an income annuity, you make a lump-sum payment and in return you get a guaranteed, steady stream of income that you can't outlive.
All annuities offer tax-deferred growth, which is a big plus. However, when you start receiving payments or taking money out (known as a "distribution") you'll need to pay some taxes. How much and on what portion will depend on whether you have a qualified or nonqualified annuity. A qualified annuity is typically funded with pre-tax dollars, so any payments you receive down the road will be taxed as ordinary income. A nonqualified annuity is typically funded with money that has already been taxed, so only the growth portion of your annuity will be subject to taxation. Keep in mind that the IRS considers annuities retirement vehicles, so if you tap into it before age 59½, you could be hit with a 10 percent tax penalty.
Yes, annuities can give you some protection against inflation, but it depends on the type you choose. Some annuities, like fixed annuities, might not keep pace with inflation since they offer a fixed rate of return. Variable annuities on the other hand can potentially grow with inflation because their returns are tied to the performance of underlying investments or market indexes. And some annuities come with built-in inflation riders that increase your payments over time to keep up with inflation. So, while not all annuities are created equal when it comes to inflation protection, there are options available that can help.
An immediate income annuity is best for someone who is very close to retiring, as it gives you a guaranteed stream of income that starts within one year of purchase and continues for the rest of your life.
Deferred Income Annuities
A deferred income annuity lets you set aside a portion of your savings today to create income for your retirement. The earlier you buy one, the higher your income payments will be down the road.
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Lifetime income
Tax deferral
Death benefit
Potential to earn dividends and flexibility in using them
Flexibility to change the amount and frequency of your payments including making regular payments, a single payment, fluctuating payments, and skipping payments
When you work with Northwestern Mutual, we ask deeper questions, listen closely, and design a financial plan tailored specifically to your life. An income annuity could be an important part of that plan, giving you a guaranteed stream of income that will take you all the way through your retirement. Find out more about how we plan.
