Retirees who have modest savings and are worried about running out of cash might be good candidates for a fixed-rate annuity.
Annuities
An annuity is purchased with one or several payments and has a payout plan that starts immediately or at some point in the future.
Fixed-Rate
If the annuity has a fixed rather than a variable rate, you’ll be guaranteed a specific income stream for life when the payout does start.
That can offer peace of mind if you’re someone who’s worried about running out of money.
Such a scenario guarantees you will have a certain level of income whether you live to 80, 90 or 100.
If you’re in good health and have a long life expectancy, you will probably get the greatest bang for your annuity buck.
Risk
But there is a downside.
No investment is without risk, and that includes fixed-rate annuities.
There is little doubt that fixed-rate annuities can provide you with peace of mind, especially if you’re retired.
In spite of that, however, fixed-rate annuities can still be a tough sell these days, when interest rates are low and many investors have rediscovered their appetite for riskier types of investments.
Many retirees also don’t like the fact that the money spent on an annuity with no guarantees is gone when the annuity holder dies, leaving nothing for heirs.
Variable Annuities
As a result, you may want to consider keeping a portion of your retirement savings in variable annuities or in mutual funds in an attempt to generate higher returns.
Your financial advisor can provide you with more information about what might be suitable for you given your individual financial circumstances and goals.