Knowing the Ins and Outs of Annuities and an IRA

It is not uncommon for investors to wonder if annuities or IRA’s are the better means for saving money for retirement.

Not too long ago, workers were under the umbrella over traditional pensions. Those days, however, are quickly going by the wayside.

Today, consumers have more questions when it comes to going forward on their retirement needs. They can empty the entire pot, put some money in a fixed or variable annuity through an outside insurance company or employer or can roll their financial contents into an IRA

According to some pension experts, the bear market might lead more retirees to selecting the security blanket that an annuity provides.

With an IRA, investors determine how the money will be invested, allowing them to withdraw what they want as the investments grow. You will be required to take minimum annual distributions at the point they turn 70 ½, however new tax rules have sharply decreased the withdrawal amount.

For those investors who prefer an annuity, their employer can help them put it together.

Businesses with cash balance plans typically make available an immediate annuity option, and some will also annuitize your 401(k). The final payment figure will be determined by factors such as the initial investment, the estimated return, and one’s life expectancy. Finally, the estimated return is based upon an assumed interest rate.

When it comes to choosing between your employer’s annuity plans or purchasing one yourself, there are several factors to take into consideration.

First, women generally do better in accepting their company’s annuity. As the law stipulates, employers are required to calculate payments based on the average life expectancy for both women and men.

Meantime, insurers use separate mortality tables for both genders. Given that women generally live longer, females obtain less expensive monthly payments from insurer calculations.

Investors have the option of shopping for greater payments outside their employer. For those who figure they can increase their monthly payments by purchasing the annuity on their own, they should first roll their savings into an IRA. At the time the money is safely secured in an IRA, investors can use it to acquire an annuity.

In an ideal world, one’s annuity should encompass their ordinary living costs, allowing them to tap their IRA for emergencies and extras.

Annuities can offer great financial opportunities for investors; be sure to do your research and work with a financial professional who can guide you along the way.