When chosen properly, annuities can help retirees minimize market volatility and reduce inflation stresses. Certified financial planners share their advice on how to find the right one and avoid pitfalls.
With the Federal Reserve’s interest-rate hike, annuities may seem like an attractive retirement-income strategy. After all, higher interest rates should mean fatter guaranteed incomes. But there are a few considerations savers must make first.
Investors with a focus on retirement may find annuities to be a reprieve from the stock and bond markets that have been crushed as inflation has climbed toward 9%.Annuities have had a bad reputation in years past, partially because they are insurance products and there has been distrust in the sales process. Investors also need to understand the fees and stipulations attached to the products they’re considering for their own retirement path.
The Fed’s rate hike leads to higher rates for fixed annuities and a higher cap rate for fixed-index annuities, said David Stone, chief executive officer at RetireOne, an insurance and annuity firm that works with financial professionals. . “In the last 12-15 years, the rates have been so low people have dismissed annuities,” he said. “This is the first time in a long time annuities have strong rates.
When choosing an annuity, investors should ask themselves two questions: how much and in what method they want to receive money from these products, such as monthly or annually, and how they plan to fund the annuity.
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