Vail Valley: Annuities could bring stability to your investments
Elvis just left the building, and he took your retirement with him. Some of us ignore it, and some of us agonize over it. But for most investors, the value lost in 2008 and seeing the market continue to slide are causes of great concern. It is especially worrisome for those nearing retirement or for those who have recently retired. Can I still retire? Will the market rebound in time for my retirement? Annuities can be a way to get some peace of mind in these troubling times by securing a steady stream of income for retirement. Annuities are a contract with a financial institution in which money is invested with the financial institution in return for periodic payments to the individual. Lets look at the basic concepts of annuities. There are two phases in an annuity contract accumulation and income. During accumulation, money is contributed periodically to build up the value that the future payments will be based on. Typically, the longer the accumulation phase, the greater the payments will be during the income phase. Money contributed during accumulation can reduce your taxable income and will grow tax-deferred. You will be taxed when money is withdrawn, but many of us are in a lower tax bracket at retirement, so this can add to the tax savings. This sounds great for the young investor with time on his or her side, but what about the retiree? Those who do not have time as an ally can bypass the accumulation phase and deposit a lump sum and start receiving income payments immediately. There are two types of annuity contracts investors can use to manage risk fixed or variable. A fixed annuity gives you a fixed amount of income, usually every month, for the rest of your life. If the financial markets go down, your income does not change. This also takes out the possibility for increased income if the markets go up. With this type of investment, you will forego a chance for growing returns for a guarantee of income. A variable annuity opens the door for possible growth if the financial markets perform well. In a variable annuity, you can choose to have a guaranteed minimum payment and an excess payment amount that fluctuates with the performance of the annuitys investment options. This allows you the opportunity to increase your income if your managed portfolio increases in value. You also risk lowering your income if the portfolio value decreases. This type of annuity offers a balance of guaranteed income with the possibility of growth. For those who have maximized their current retirement plan, variable annuities can be used to increase retirement savings. A lot of investors were not afraid of risk when it seemed everything went up, but now, many investors have seen all areas of their portfolios go down, and their attitude toward risk has changed. You may not want as much risk exposure. Take time to ask your financial adviser if annuities are right for you and your goals. An annuity may be a way to lower your risk exposure and get some stability back into your portfolio. FYI: Variable annuities are only offered by prospectus. You should read it carefully before deciding to invest. Fixed annuity payments are based on the claims-paying ability of the insurer. Shawn Weatherred can be reached at Creative Investment Concepts Inc. in Eagle at 970-331-3086. Securities offered through Cadaret, Grant, & Co. Inc. Creative Investment Concepts Inc. and Cadaret, Grant & Co. Inc. are separate entities.