How Annuities Can Make Retirement Planning Easier To Manage

Retirement planning is difficult because of the sheer number of variables that go into every decision. Since no one knows how long they'll live or their exact financial requirements as they move out of their working life, it's hard to know how to set up your investments. Also, because most investments vary on the amount of money returned, you won't know exactly what your retirement portfolio will look like until you get there.

That's what makes annuities so important. They have a few critical traits associated with them that can help take the guesswork out of retirement investing and lead you to a stable, predictable retirement income.

Guaranteed Payments

Basically, when you purchase an annuity--either with a lump sum or with payments--you're purchasing a guarantee for payments at a specific amount. These payments are structured in two different ways, based on the type of annuity you purchase:

• Fixed Annuity--Your payment amount is guaranteed regardless of how your annuity investment funds performed
• Variable Annuity--Payments are based on how well the investments did

You can elect to have your payments cover a certain period of time after they begin, or you can opt to have payments continue for the rest of your life. Depending on the strength of your portfolio and other retirement income streams, one might make more sense than the other. Regardless, the income guaranteed by an annuity is an easy way to determine what your baseline retirement income will be--allowing you to plan your other investments accordingly.

Survivor Benefits

Along with income stability and predictability, annuities can help solve another difficult retirement planning issue--helping a surviving spouse or child. In situations where you are the primary income earner, you'll need to set up a financial structure for your dependents to survive on after your death.

By raising your guaranteed retirement income, annuities allow you to set up a savings plan for your loved ones, even during your retirement phase. More importantly, in the event that you pass on early in your annuity repayment schedule, a survivor benefit is paid to your designated beneficiary. That way, in the event that you don't survive long enough to hit your savings goal, your loved ones are still supported.

When planning for retirement, establishing your income and setting up funds for your loved ones are two of the most difficult issues to tackle. Since annuities are well-equipped to handle both, they are often a critical component of a wise investor's retirement strategy.