Don’t let your money stay idle in savings accounts. You can earn a steady stream of passive income with a smart financial strategy.
One of the best ways to guarantee income for life is through annuities. There are number of annuity strategies available to the modern investor.
Here are some of the proven annuity strategies to generate wealth to support your lifestyle or early retirement plans.
Deferred payments
Generally, you can start taking payouts from your annuities as soon as you get close to your retirement age, around 59½ years.
But this is far from the optimal strategy. The earlier you start claiming the payments, the lower your average payment will be.
Ideally, you want to defer taking payments as much as possible. If you can wait until 70 or 75, do so; the number of payments will be reduced, but you will get more income per payment.
Of course, the success of this particular strategy hinges entirely on your health status.
If you are reasonably healthy and don’t have a family history of major illnesses, delaying annuity payments is a sound strategy.
But if you have health issues, you may want to start cashing in earl. It depends on your comfort level.
Annuity riders
Some annuities come with special benefits like guaranteed growth towards future income.
These riders are optional enhancements. They come with additional costs and fees.
We can divide the riders broadly into living benefits and death benefits.
With living benefits, you will enjoy the financial benefit from the rider. With death benefits, a designated third party — like your surviving spouse or descendants — will enjoy the financial benefits after your demise.
Take special care while adding riders. While one or two additional benefits may make sense, you should only pick them after careful consideration of the potential benefits vs. drawbacks, such as higher fees and other costs.
Laddering with multiple annuities
Instead of banking on a single annuity for your retirement years, you can put your money into multiple annuities. When you invest in several annuities with different maturity dates, you are using an annuity strategy called laddering.
If you invest $100,000 in a single annuity that matures after 10 years, you only get one income stream. Now, imagine breaking that amount down into three separate annuities:
- $20,000 in a short-term annuity — 5 years
- $30,000 in a medium-term annuity — 10 years
- $50,000 in a long-term annuity — 15 years
With this plan, you will get the $20,000 to invest in a longer plan at the end of 5 years.
Meanwhile, you can still enjoy the income streams from the other two, giving you more bang for your buck. You can also invest in annuities at different times to enjoy better interest rates.
Charitable gift annuities
With a donation to your preferred charitable organization, you can enjoy multiple benefits. First of all, there is the satisfaction of donating to a worthy cause. The organization will receive a gift that amounts to half the annuity fund.
Better yet, these donations to the charity are tax-deductible, which can be extremely useful from a tax-planning perspective.
You still get annuity payments for half of the donation throughout your entire life. Thousands of organizations in the country offer charitable annuities.
