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Are Annuities the Right Choice for Your Retirement Plan

Updated: May 10

When planning for retirement, many residents face the challenge of ensuring a stable and secure financial future. At Parkmount Financial Partners we often encounter questions about the viability and strategic value of annuities in a retirement portfolio. Given the complexities of tax considerations, investment choices, healthcare costs, and income planning, it's crucial to approach this topic with a detailed and knowledgeable perspective.

What Are Annuities?

Annuities are financial products designed to provide a steady income stream during retirement. They come in various forms, including fixed, indexed, and variable annuities. Each type offers different features and benefits, but today's blog is focused on income annuities, sometimes referred to as SPIAs (Single Premium Immediate Annuities) to secure a predictable retirement income for life.

The Safety First Approach

Many financial experts advocate for a "safety first" strategy, particularly suitable for individuals who are risk-averse. This approach suggests that essential expenses in retirement should be covered by guaranteed income sources like Social Security, pensions, or annuities. When you live in a high-cost area like the Boston area or southern California, it's unlikely that your social security will cover all of your essential expenses. The idea is to minimize reliance on the volatile market, ensuring that your fundamental needs are met regardless of economic fluctuations.

Pros and Cons of Annuities

While annuities can be an attractive option for securing guaranteed income, they are not without drawbacks. Here are some key considerations:

  • Complexity: Annuities can be complex and often come with various fees and riders that can impact the return.

  • Estate Planning Limitations: Once invested in an annuity, the control over those funds is significantly reduced, which can be a disadvantage for estate planning.

  • Inflation Risk: Traditional annuities may not always account for inflation adequately, although some products offer inflation protection at an additional cost.

Is an Annuity Right for You?

The decision to include an annuity in your retirement plan should be made on a case-by-case basis. For residents of the Boston area and beyond, considering an annuity as part of your retirement strategy could offer peace of mind by providing a guaranteed income. But it is not without a significant potential trade-off. Historically having a balanced portfolio into retirement has been a sound approach to effectively producing income if you have a prudent and thoughtful withdrawal plan. It is likely that if markets continue to do well in the long term, even if there are bouts of volatility that you forgo a significant amount of wealth for the sake of the income guarantee in your portfolio. Fort this reason, it's crucial to assess your personal risk tolerance, financial goals, and the potential for an annuity to meet your retirement needs effectively.

Parkmount Financial Partners: Your Local Financial Planning Experts

At Parkmount Financial Partners, we pride ourselves on assisting corporate employees from the South Shore to Boston area with our financial planning services. In many instances we work with individuals across the country who are planning to step back from work if we are familiar with their company's benefits and compensation structure and exempt from licensing or already licensed in their state. Some of the companies we have significant experience in are Raytheon Technologies, Sanofi, Biogen, CVS Health, and Bose Technologies. If you are an employee at one of these companies, we invite you to reach out for a conversation about retirement planning. Understanding the intricate puzzle of taxes, investments, healthcare, and income planning is our specialty. If you’re considering how annuities might fit into your retirement plan or have any questions about retirement income planning, please visit our website or contact our Scituate office. We’re here to help you navigate these crucial decisions with confidence and clarity.

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