Planning for a Bright Future

About Me

Planning for a Bright Future

When I graduated college, I landed a dream job teaching accounting at a university. For five years I enthusiastically taught my students important accounting principles. During this time, I put a significant portion of my paychecks into a retirement fund. Because I’ve always been extremely conservative with my finances, I invested all of my cash into money market funds. Unfortunately, this decision did not yield great results. Now that I’m older and wiser, I’d like to rectify the retirement mistake I made when I was younger. On this blog, I hope you will discover the best types of funds to include in your retirement portfolio. Enjoy!

Contemplating Retirement During The Next Few Years? Should You Purchase A Variable Annuity?

If you're beginning to draw nearer your planned retirement age -- or if you're concerned about your ability to keep earning your present income and are eyeing paths to an early retirement -- you may be investigating your various savings options. With a volatile stock market and fluctuating commodity prices, along with seemingly constant increases in the cost of health insurance, finding an investment vehicle that will preserve your retirement income while providing returns that outpace inflation can seem tricky. Read on to learn more about variable annuities to help determine whether this is your best retirement savings choice. 

What is a variable annuity?

Unlike a fixed-rate annuity, which provides you with a guaranteed monthly (or yearly) income during retirement in exchange for an initial lump sum investment, a variable annuity's eventual payout depends upon the performance of the funds in which it's invested. When you purchase a variable annuity, you'll provide the brokerage or lender with a specified amount of money and will choose an investment path (from most conservative to most aggressive). Your initial investment is then used to purchase stocks, options, and bonds whose growth potential is in line with the aggressiveness of your portfolio. At a specified date in the future, these funds will then be used to pay you a monthly or annual annuity.

When might a variable annuity be the best retirement savings choice? 

Variable annuities aren't always right for everyone. If you spent most of your career at a job that did not withhold Social Security taxes, and you don't qualify for a pension, you'll want to be more conservative in you retirement savings (and investments), as you don't have a backup source of income if your investment values go south when you need them most. While even variable annuities invested in poorly-performing funds will pay out something each month (or year), you may find that you'd have had more money in retirement simply by investing in a conservative mutual fund.

However, if you will qualify for Social Security at retirement, or if you have another alternative source of income or retirement savings, a variable annuity can help give you the boost you need to retire early or to ensure you'll have enough to support yourself into the foreseeable future. By investing in more aggressive fund choices with a higher long-term historical return, you can give yourself a healthy income in retirement by investing today.