DEFINITION:
An annuity is a financial product sold by insurance companies that provides a steady stream of income in exchange for an upfront payment or series of payments.
WHEN AND WHY IT’S USED:
Annuities are used as a tool for ensuring a predictable income during retirement. They are particularly beneficial for individuals who want to guarantee a certain level of income over a set period or for life, regardless of market performance. This predictability makes annuities appealing to those who are risk-averse or concerned about outliving their savings.
IMPORTANCE IN COMMUNICATION:
Discussing annuities with your financial advisor is important because they represent a balance between security and flexibility in retirement planning. A clear explanation of how annuities work—including fees, payout options, and potential tax implications—helps you evaluate if they fit your income needs and risk tolerance. This dialogue ensures that you understand the long-term commitment and features of the product.
Furthermore, effective communication about annuities can reveal how they integrate with your overall retirement strategy. Your advisor can explain how annuities complement other investments, ensuring you have a diversified approach to generating income. This conversation is vital to making an informed decision that aligns with your retirement goals and financial security.