The Right Annuities for Retirees? Well…It Depends.

In this Dechtman Wealth Management article, you’ll learn:  

• The key differences between fixed annuity vs. variable annuity, and immediate vs. deferred annuity.
• How much a $100k or $50k annuity might pay monthly
• Our most commonly asked questions about how much a $100K or $ 50 K annuity can pay, and the pros and cons of annuities.
• The most significant disadvantages and costs to watch for in annuity contracts

We’ll also explain the types of annuities for retirees and cover our most common client questions about payouts, costs, and drawbacks to help readers understand how annuity contracts may fit into their retirement plans.

Have you ever noticed and wondered why some retirees within your social circles swear by annuities, while others hesitate? The truth is, annuities for retirees can become powerful tools, but only if they align with your goals.

With so many options on the table, so many details and nuances, like fixed annuity vs. variable annuity, immediate vs. deferred annuity, and what defines a low-cost retirement annuity and what to watch for in annuity contracts, many individuals struggle. Learning about these options and why or why they may not be right for you is your firststep toward making the right, intelligent decisions for financial security in the future.

Join us as we demystify annuity contracts for retirees, answer the most frequently asked questions, and share our professional insights to help you make empowered decisions.

In Brief: What Are Annuities for Retirees?

Annuities for retirees are long-standing agreements between you and an insurance company. In exchange for a lump sum or a series of payments, you receive regular income, often for life. But there isn’t just one kind of annuity; there are many. Considering fixed annuity vs. variable annuity and understanding immediate vs. deferred annuity options can dramatically affect your future retirement goals.

• Fixed annuities provide predictable, steady payouts.
• Variable annuities tie your payments to underlying investments, so your income could fluctuate with the market.
• Immediate annuities start payouts almost at once (typically within a year)
• Deferred annuities let your money grow tax-deferred before withdrawals.

These simple yet key differences lay the foundation for a solid comparison between low-cost retirement annuities and other options and help clarify the role annuity contracts will play in your overall strategy.

Fixed Annuity vs. Variable Annuity: Which Fits Your Needs?

What are the key differences between fixed vs. variable annuities?

Fixed Annuity

• Offers a set interest rate and consistent monthly payments.
• If you want predictability and less exposure to market swings, this is ideal.

Variable Annuity

• Payments vary based on the performance of your chosen investments within the annuity.
• You have the growth potential with the risk of lower payments.

If you’re a retiree focused on reliable income, you will most likely prefer a fixed annuity, while those comfortable with market risk might want to consider a variable annuity. They offer immediate vs. deferred annuity options so you can tailor your choice even further.

Immediate vs. Deferred Annuity: Timing’s Vital

Timing can quickly become paramount when contemplating immediate vs. deferred annuity products.

• Immediate annuities begin generating payments shortly after purchase. It’s usually within 30 days to 1 year. For those about to retire or seeking to convert a lump sum (like a pension payout), this may be ideal for a steady income stream.
• Deferred annuities alternatively allow your investment to grow tax deferred as time passes, with payment schedules to begin at a future date. This option is helpful if you plan to build your retirement income for later years.

Both annuity types have pros and cons, and we highly encourage you to assess your timeline, income needs, and long-term plans when evaluating annuities for retirees.

Low-cost retirement annuity? What Should You Know?

Cost is often a frequent concern when exploring annuities for retirees. A low-cost retirement annuity generally lowers fees, allowing you to keep more of your retirement savings. Fees differ considerably based on features, riders, and the provider. Comparing costs will be especially critical if you have varied annuities.

Dechtman Wealth Management Tip: Focus on transparent, straightforward annuity contracts and compare all the underlying costs, not just the headline rates, before committing to anything.

Common FAQ around Annuities for Retirees

How much does a $100K annuity pay per month?

Unfortunately, predicting a payout amount from a $100,000 annuity varies wildly. It is based on factors like age, gender, and the type of annuity you have chosen. As of the latest, more relevant data from 2024, for example, a 65-year-old male purchasing an immediate annuity might receive $542 to $1,031 per month.

What does a $50k annuity pay per month?

A $50,000 immediate annuity could pay between $250 and $300 per month using the same parameters. Remember, the specifics vary considerably based on the annuity provider, type of contract, and your details.

What is the most significant disadvantage of an annuity?

While annuities for retirees can offer many potential benefits, there are limitations, such as:

• Liquidity: Most annuity contracts restrict withdrawals, and accessing funds early may trigger penalties.
• Complexity and Fees: Important with variable or deferred annuities, fee structures can be intricate, and costs can quickly add up.
• Inflation Risk: Fixed annuities may lose purchasing power over time unless you select inflation protections.

Every decision involves trade-offs. This is why it is vital to consider a fixed annuity vs. a variable annuity that fits your one-of-a-kind situation and lifestyle.

Are Annuities Taxable?

Yes. In general, annuity payments are subject to income tax. The taxable portion depends on whether the annuity was purchased with pre-tax or after-tax dollars. Earnings from annuities bought with after-tax dollars are taxed upon withdrawal, while those purchased with pre-tax funds are fully taxable.

What’s the essential difference between a fixed annuity and a variable annuity?

The significant difference lies in the regularity of your income payments and the underlying investments. Fixed annuity provides a consistent, fixed income stream for the contract term, while a variable annuity’s payments fluctuate based on the performance of the investments within the annuity.

What are the Pros and Cons of an Annuity?

While annuities offer benefits, there are also drawbacks. Your essential decision point may be whether the advantages outweigh the disadvantages for your specific financial growth situation and goals:

Pros of a correctly structured annuity:

• It can provide consistent income streams, offering more security and confidence.
• Taxes are not paid on tax-deferred annuities until withdrawals are made.
• If you are concerned about outliving your retirement savings, an annuity could provide a secure income stream for life.
• Annuities can be tailored and customized to meet your specific needs.
• Some annuities offer protection against inflation, helping you to maintain purchasing power as time passes.

Cons of a poorly constructed annuity:

• High fees that often include surrender charges, mortality and expense risk fees, and other administrative costs.
• Many annuities have limited liquidity due to surrender periods or withdrawal restrictions, limiting your access to funds without penalties or fees.
• The complexity of annuity contracts makes it challenging for many to understand all the terms and conditions.
• Withdrawing funds from an annuity before a certain age or surrender period can result in penalties and taxes.

Make the Right Decision for You. Personalized Guidance Matters.

Trying to decide between annuities for retirees should come down to matching your needs with the correct type of contract. Whether you’re weighing a fixed annuity vs. variable, thinking about immediate vs. deferred annuity solutions, or searching for a low-cost retirement annuity, having a clear starting point enables you to make the right decisions for your lifestyle, goals, and future needs.

At Dechtman Wealth Management, retirement planning shouldn’t be about constantly worrying over little details. Our professionals are dedicated to guiding you and helping you access your options, create a custom strategy, and answer any questions you may have.

Over 40 years of stability, trustworthiness, and personalized care for your retirement journey are available when needed.

If you’re considering annuity contracts or need someone to walk beside you as you explore your choices, schedule your complimentary assessment today, and let’s discuss what’s possible for your future.