As you approach retirement, you may be considering ways to create a stable stream of income to supplement your retirement savings.
One option to consider is purchasing an income annuity. An income annuity is a contract with an insurance company that provides a guaranteed stream of income for a specified period or for the rest of your life.
In this blog post, we will discuss the steps to buy an income annuity in retirement.
Understand the basics of annuities
Before you decide to purchase an annuity, it’s important to understand what it is and how it works.
An annuity is a contract between you and an insurance company. You make a lump-sum payment, and in exchange, the insurance company promises to make regular payments to you for a specified period or for the rest of your life.
An annuity can provide a guaranteed stream of income that can help supplement your retirement savings.
Determine your annuity goals
Before you start shopping for annuities, it’s important to determine your goals for the annuity.
Do you want a guaranteed income for life, or do you want income for a specific period? Do you want to provide income for your spouse or other beneficiaries?
The answers to these questions will help you determine what type of annuity is right for you.
Shop around for annuities
Once you have determined your annuity goals, you should start shopping around for annuities.
You can work with a financial advisor who can help you find the best annuity for your needs, or you can do your own research online. When shopping for annuities, it’s important to compare the fees, surrender charges, and payout rates of different annuities.
Choose your annuity
Once you have shopped around for annuities, you can choose the annuity that best meets your needs. When choosing an annuity, consider the fees, surrender charges, and payout rates. You should also consider the financial strength and reputation of the insurance company offering the annuity.
Purchase the annuity
After you have chosen your annuity, you can purchase it by making a lump-sum payment to the insurance company. The insurance company will then begin making regular payments to you according to the terms of the annuity contract.
Understand the tax implications
It’s important to understand the tax implications of an annuity.
The payments you receive from an annuity are taxed as ordinary income. If you purchase the annuity with pre-tax dollars, such as from a traditional IRA, the entire amount of each payment will be taxable.
If you purchase the annuity with after-tax dollars, such as from a Roth IRA, only the earnings portion of each payment will be taxable.
Monitor your annuity
Once you have purchased an annuity, it’s important to monitor it periodically to ensure that it continues to meet your needs.
You should review the fees, surrender charges, and payout rates of your annuity on a regular basis to ensure that you are still getting a good value for your money.
