I’m 50 years old and my 401(k) plan is suggesting I buy annuities. Is this the right move?

If you’ve received announcement that your 401(k) program present offers annuity options, you whitethorn privation to look into what these products are, and however they tin assistance you program your retirement.

Imagine Geoff, who is 50 years old, and precocious received an email from his 401(k) program head encouraging him to acquisition annuities. He presently has $650,000 successful his 401(k), and helium ever contributes the maximum magnitude to instrumentality afloat vantage of his employer’s matching program. He thinks that helium volition discontinue astatine property 65. Are annuities a bully enactment for him?

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The transition of the 2019 SECURE Act made it easier for 401(k) program administrators to connection annuities (1). This alteration was meant to springiness Americans much options for guaranteed status income.

An annuity is an security merchandise that tin assistance you conscionable semipermanent savings goals. When you acquisition an annuity, you marque a lump-sum payment, oregon a bid of payments, and the insurer agrees to marque payments to you either astatine a specified date, oregon instantly (2).

Deferred annuities volition supply payouts successful the future, portion contiguous annuities statesman payouts close distant (3). Tax is typically deferred connected concern net wrong an annuity, and gains are taxed astatine mean income rates, not capital-gains rates, erstwhile withdrawals are made (2).

There are 3 types of annuities — fixed, adaptable and indexed. A fixed annuity volition person a fixed involvement complaint (though it whitethorn beryllium fixed lone for a acceptable fig of years) arsenic your investments grow, and payments astatine a specified magnitude (4).

With fixed annuities, you tin take whether payments are for a acceptable play of time, beingness payments oregon payments for the beingness of you and your spouse. Options wherever beneficiaries person payments aft your decease whitethorn request to beryllium purchased arsenic a rider. Fixed annuities are fashionable due to the fact that they connection a dependable complaint of instrumentality and income stream. Because payouts are not affected by marketplace fluctuations, they tin besides connection bid of mind.

Variable annuities are a much analyzable product. They connection antithetic concern options, and your complaint of instrumentality depends connected the show of your investments. A positive of this merchandise is that it typically offers decease benefits for specified beneficiaries. However, 1 drawback, according to the Financial Industry Regulatory Authority (FINRA), is “unlike a word beingness policy, wherever the beneficiaries successful astir instances person much than the premiums made, beneficiaries of adaptable annuities are mostly lone guaranteed a instrumentality of the premium, nett of immoderate withdrawals (4).”