Retirement Planning: The Role of Annuities and Life Insurance
The best years of our lives often come during retirement, as you can finally do all the things you wanted but couldn’t, as you were too busy working and saving up for the future. Those who successfully plan for retirement can live out the remainder of their lives in comfort and luxury without worrying about their financial well-being or working to make a living.
Many consider pensions as the go-to instrument for retirement planning. While pensions are important it is not the only tool in your arsenal to ensure guaranteed benefits upon retirement. Annuities and life insurance can also play an essential role in ensuring your retirement plan is fool-proof and your chosen retirement savings accounts provide you with the funds you need to live out the golden years of your life in the lifestyle of your choosing.
If you are wondering how annuities and life insurance can help you with retirement planning and are wanting to learn more about these financial products, you have come to the right place. In this guide, we will learn about the importance of life insurance and annuities, their differences and types, and the benefits they offer!
What Does Retirement Planning Entail?
A retirement plan is essentially a blueprint that helps you prepare for your future; today! Retirement planning entails setting up clearly defined retirement goals and determining what actions, decisions, and sacrifices must be made to achieve those goals.
As such, retirement planning can entail a lot of things, including identifying potential and future income sources, estimating current and future expenses and cash flow, figuring out what saving plans are best suited to your objectives and goals, and how to best manage investments and assets to grow retirement savings.
It is always advisable to consult with an expert financial advisor when setting up a retirement plan as there are many intricacies to retirement planning that only an expert can help shed light on!
What Role Do Annuities & Life Insurance Play In Retirement Planning?
Life insurance is a legally binding contract between you and an insurance provider that guarantees a cash benefit paid to your appointed beneficiaries at the time of death.
On the other hand, annuities are also a contract between you and an insurance provider whereby you make a series of installments or a lump sum payment and can get a series of payments over a fixed period (usually upon retirement) that can last until your lifetime. They can also include a death benefit if your annuity has a guaranteed period that hasn’t expired upon your death or you have invested in a deferred annuity.
Here is the sum of the key differences between life insurance and annuities.
| Differences Between Annuities & Life Insurance | |
| Life Insurance | Annuities |
| Two types; term or whole life insurance | Four types; fixed, variable, immediate, and deferred |
| Pays out at the time of death | Pays out over your lifetime |
| Cash benefits paid out to beneficiaries | Offers guaranteed lifetime income |
While both annuities and life insurance are essential tools for retirement planning they both work differently and play different roles in retirement planning helping achieve contrasting retirement objectives.
While life insurance is designed to provide income to loved ones upon your demise, annuities are a fixed-income financial product designed to guarantee a steady stream of income during your retirement years.
What Are The Different Types Of Annuities?
To better understand the different roles of annuities in retirement planning we must first look at the different types of annuities and their purpose.
Fixed Annuity
One of the most common types and the least risky of the annuities available in the market, a fixed annuity is a financial product that allows you to earn a fixed interest rate on your annuity investments. As a rule of thumb, the longer your investment term the higher the rate of interest will be.
Variable Annuity
This is a riskier but potentially also more rewarding type of annuity. In a variable annuity, your payments are invested in other financial products such as stocks, bonds, and mutual funds. As such, if your investments do well you stand to gain a lot more than fixed annuities but if they don’t perform well you also stand to lose money on your annuity investments.
Immediate Annuity
This form of annuity involves paying a lump sum payment upfront to get regular payments in the form of paychecks moving forward or starting from a specified date. The amount and frequency of these ‘paychecks’ vary depending on many factors such as age, gender, duration of term, current inflation and interest rates, etc. An immediate annuity’s main purpose is to protect an individual’s savings against outliving their income.
Deferred Income Annuity
A deferred income annuity allows an individual to save and grow tax-deferred retirement income. The annuity can either be paid out in lump sum or lifetime income payments and its major benefit is that the initial investment made isn’t taxable and neither are your investment gains until you decide to withdraw.
The Benefits Of Annuities & Life Insurance For Retirement Planning
There are plenty of benefits to annuities and life insurance when it comes to retirement planning. Here are some of the most common benefits.
- Helps Protect Savings Against Inflation & Market Risks
- Safeguards your loved ones against financial loss
- Offer tax-deferred investment growth
- Lifetime income benefits and death benefits to beneficiaries
- Varying tax benefits depending on the type of annuity or life insurance you opt for
Retirement Planning Made Easy With McIver Insurance!
Thinking about retirement from an early age is the key to attaining financial independence and securing a sound and healthy financial future. When it comes to life insurance for Nova Scotians there is only one company you should look for consultation – McIver Insurance!
We are proudly Nova Scotia’s most trusted life insurance brokerage company that has helped thousands of Nova Scotians get insured and live a fearless tomorrow!
