As Baby Boomers near retirement, they may feel uneasy about the lack of guarantees offered by the investments in their employer-sponsored 401(k) plan. Increasingly, some plan sponsors are addressing this concern by offering plan participants an opportunity to annuitize all or a part of their plan balance.
If an annuity* appeals to you, and your company retirement plan doesn’t offer this feature, you may consider taking a portion of your plan balance and annuitizing on your own to preserve some plan gains and, ultimately, for financial confidence in your future. Here’s what you need to know:
An annuity is a contract between you and an insurance company for which you pay one lump sum or periodic premiums in return for regular income. Immediate annuities begin providing income immediately; deferred annuities begin at a later date. Income you receive may be for a predetermined period of years, called “period certain.” Or you can opt for lifetime income, which usually costs more.
While there are different types of annuities, most don’t offer the certainty of a fixed annuity. Typically, this type of annuity offers a monthly stream of income with a guaranteed rate of interest and guaranteed principal backed by the issuing insurance company. For risk-adverse consumers, certainty is usually a fixed annuity’s biggest selling point.
Questions to Ask
To find out if a fixed annuity is right for you, you’ll need to get answers to a few questions and compare annuities. Learn the financial strength of the insurance carrier issuing the policy. Determine whether or not there are penalties for early withdrawals from your 401(k). Compare fees and other charges, including surrender charges. A financial professional can help you with this process.
* An annuity may impose charges, including but not limited to surrender charges, mortality and expense risk charges, administrative fees and underlying fund expenses. You will have to pay federal income tax on any earnings you withdraw from the annuity. Payments and guarantees are subject to the claims-paying ability of the issuing insurance company.