The title of this article is not quite true, but close. With 15 candidates in place for the Republican nomination, the choices are overwhelming. Just as astounding is the number of retirement options that exist: 401(k), 403(b), IRA, pension, SEP fixed annuity, variable annuity, index annuity, etc.
These options are not really products, but rather programs that the government has created to allow people the ability to save for retirement. What you invest in these programs may vary extensively, and outnumbers the amount of Republican candidates by far.
Because there are so many different financial products available, it can often be a confusing array when deciding on the plan that’s right for you.
Selecting an Investment Plan for Your Retirement Needs
Chances are at this point, you likely do not have a pension, though some employers still offer it. If you’re lucky, your company offers a 401(k). Roughly half of all companies offer a retirement plan in the form of a 403(b) or a 401(k) for government agencies, schools or charities.
As people continue to move from one job to the next, it is common for working individuals to have multiple 401(k)s in different places. For example, if you worked for company A and after some time, transitioned to a position with company B, you might have a 401(k) at both company A and B.
IRAs allow individuals to set money aside each year to use towards their retirement. With an IRA, you choose what you invest in; however, the amount that you can save is limited to what the government will allow you. This is similar to a 401(k), but the amount is significantly less, and companies won’t set aside money for you like they typically do with a 401(k).
Understanding the Complexity of Annuities
Annuities have been around for hundreds of years. Put simply, they pay out a specified amount based on a definitive payment implemented today. The basic premise of any annuity is that if you live to be 98 years old, you have a guaranteed income stream.
One of the benefits of this product is that you as the individual relinquish the risk of outliving this amount of money. However, annuities can seem confusing as they are considered both a program and a product.
The idea of immediate annuities is quite simple. Basically, you retire tomorrow, turn money over to an insurance company, and they in turn submit back to you a fixed sum each year for life. The benefit is that you have a guaranteed income stream. The downside is should you die tomorrow, you children will not inherit that money.
Over the years, annuities have become one of the most complicated products on the market. The constant evolution of the programs available makes it difficult to know how they really work.
Another variant is the indexed annuity. Rather than receiving an immediate dollar amount, the money is invested to keep up with stock market gains. With this type of annuity, you are not immediately surrendering all future stock market returns. This is also know as a deferred annuity, because you are deferring the income to start sometime in the future.
Indexed annuities are tied to stocks, bonds or other indexes. The benefit of this program may be that you lock in gains, but this can be complicated to understand. The vast majority of people who are buying them have no understanding of what they’ve just been sold.
Variable annuities are another type of annuity. Rather than being tied to one specific index, they can be invested in an area of your choosing, or a list of investments offered by the insurance company.
The Chaos of Selecting Your Choice in a Sea of Options
When it comes to the 2016 presidential election, you may decide not to vote. But when it comes to preparing for retirement, your vote is important. If qualifying for retirement sends you into a frenzy, do not hesitate to seek out help in understanding your options.
To learn more about James Cornehlsen, visit www.Capstoneinvest.com.
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