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As you prepare your finances for retirement, you should consider moving some of your portfolio into a retirement annuity. This product creates a guaranteed income for the rest of your life. It works like a personal pension plan. 
This article discusses the features, advantages, and disadvantages of retirement annuities. If you want more information on retirement annuities, you can use our free retirement annuity calculator to find current retirement annuity rates from the best companies in the industry.
Annuity Design
When you buy an annuity, you buy a stream of future payments in exchange for your initial investment. The size of your monthly payment depends on the size of your initial investment and the length of your payout period. A larger annuity investment creates higher monthly payments because your account has more money distribute. A longer payout period creates lower monthly payments because your annuity makes more monthly payments. Each payment needs to be lower so the contract does not run out of money.
An annuity contract can be based on a fixed time period or on your life expectancy. When you buy a fixed annuity, your annuity makes a set number of payments no matter what. If you die during the contract, payments continue to your heirs. Once the payment period ends, the contract expires and the annuity company stops making payments.
A life annuity does not have a set payment schedule. This product makes monthly payments as long as you are alive. When you die, the contract ends and no payments continue to your heirs. The amount of your monthly payment depends on your age at purchase. Younger investors receive lower monthly payments. The annuity company expects younger investors to live longer and receive more payments. They receive lower monthly payments so their contracts do not run out of money.
Retirement Annuity
A retirement annuity is a type of life annuity marketed to retirees. These contracts are usually funded with the retirement plans of retired workers. For most companies, the term retirement annuity is simply another name for a life annuity. Some companies offer different rates for their retirement annuities and life annuities so you may want to receive quotes from both calculators before making a decision.
Retirement annuities are also immediate annuities. These contracts start making payments within one year of your purchase. When an investor buys a retirement annuity, he is usually looking for a way to replace his work earnings. He does not need a long investment period because he has built up his savings through his retirement plan. If you are looking for a contract that delays payments to increase your investment, you should look into a deferred annuity.
Ownership
As you design your retirement annuity contract, you need to decide on the number of contract owners. An annuity can have one or two owners. This is an important decision for a retirement annuity because it is a life annuity. These contracts make payments as long as the contract owners are alive. A single life annuity is based on one person’s life expectancy while a joint life annuity is based on the life expectancy of two people.
A single life retirement annuity has a higher monthly payment. The annuity company expects to make fewer payments based on the life of one person than on the lives of two people. The single life annuity is a risky investment if you are married. If the owner spouse dies first, the surviving spouse receives no further payments from the retirement annuity.
Advantages
A retirement annuity is one of the few ways to guarantee income during your retirement. Other accounts can run out of money due to market losses or because you lived too long and spent all your money. The retirement annuity does not have this problem because the annuity company guarantees payment for your life.
This contract also delays taxation on your investment gains until you receive withdrawals. You can spread the tax liability of your 401(k) over your entire retirement by investing in a retirement annuity. This account grows your investments safely with a delayed tax liability in addition to offering guaranteed lifetime income.
Disadvantages
There are a few problems with the retirement annuity that should be considered. A significant problem is its design as a life annuity. Payments end when the contract owner or owners die. These plans do not leave an inheritance to your heirs. If you die early in the contract, it is possible that you did not receive enough payments to justify your investment.
Another issue with the retirement annuity is it does not offer any flexibility for your payments. You cannot take an advance of future payments if you have a financial emergency. In addition, you cannot delay unneeded payments so you can earn a higher investment return.
You also lose access to your entire initial investment by purchasing these contracts. While you may be able to cancel your contract and have your deposit returned, this is a costly process. The annuity company could charge you a significant early withdrawal penalty for cancelling your retirement annuity. Once you purchase a retirement annuity, it is difficult to change your decision. Make sure you purchase is well researched before signing a contract.
Retirement Annuity Calculator
If you want to find more detailed information on retirement annuities for yourself, you can use our free retirement annuity calculator. This tool searches the databases of the best annuity companies. By using the calculator, you find the most current quotes for retirement annuities. To use the annuity calculator, simply input your desired investment, your age, and your spouse’s age if applicable. The calculator will use this information to find quotes from multiple companies. You will receive this information by email or by a phone call from one of our agents.
