Should You Invest Retirement Savings in Annuities? | SafeMon

By Brent Meyer — SafeMoney.com Founder & Editor Reviewed by Licensed Financial Professionals  |  SafeMoney.com — Trusted Since 2011  |  Updated Regularly Quick Answer: Explore if annuities are the right choice for your retirement savings. Learn more about guaranteed solutions today at SafeMoney.com. Do annuities make sense for your retirement portfolio? Well, when used right they can be a very powerful financial vehicle, especially for retirement . Annuities allow an investor to pay a lump sum of money upfront and then receive an income stream in return for a set period of time. The insurance company is bound to provide this income stream by contractual guarantees. The income stream can last anywhere from a set duration to a lifetime. Here’s a quick look at some annuity basics and other helpful tips to consider. Some annuity Basics and Tips Generally speaking, annuities come in two flavors: fixed and variable annuities. Fixed annuities have a fixed interest rate and the investor receives a set payment every period. Variable annuities have a variable interest rate, so the annuity payment and overall value depend on the performance of the annuity ’s underlying market investment. Fixed annuities may be a more appropriate solution than variable annuities for investors concerned about market risk. Here are some tips to find what annuity might be right for you and your risk tolerance. Pro tip: Because annuities can be complex products, it’s advisable to work with a financial professional who understands these contracts and their proper uses: Identify your financial and income goals. For example, are you looking for growth or income in your portfolio? Does your portfolio prepare you to meet your income and financial needs in retirement? What sources will you receive money from once you retire, and what are the tax implications of those sources? Research the best annuities to meet your needs. There are a lot of options for annuities. You should narrow down those that best meet your needs, goals, and overall financial picture. Pay attention to the insurance company offering each contract. What is its financial strength? Does it have solid ratings from A.M. Best and other agencies? Important: What is the insurance company’s solvency ratio, or how much surplus reserves it holds above required reserve amounts? Does its company leadership have a solid industry record? Also, look for annuity options that offer you more at the least cost possible.