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My advisor recommends investing more than 50% of my portfolio in annuities. What are you saying?
– Georgia
As with most personal financial decisions, a lot depends on the specific details of your situation. Fifty percent would probably be on the high side for most people, but that doesn’t mean it can’t be the right amount for you. Some may even want or have more of their portfolio in one annuity.
Let’s talk about the reasons why you might want to put so much into an annuity, and the reasons why someone might not. Compare these items with your own situation, goals and preferences and decide whether 50% is the right amount.
Consider using this free tool to match with a financial advisor if you are interested in tailor-made advice based on your circumstances and objectives.
Guaranteed income is the fundamental reason to buy an annuity. While there are many types of annuitiesan immediate annuity is the simplest and clearest variant. With a lifetime immediate annuity, you exchange a fixed amount for a series of regular monthly payments. Like a pension or Social Security benefits, lifetime immediate annuity payments last for the rest of your life.
With that in mind, let’s take a look at some of the top benefits of purchasing an annuity. The more these benefits appeal to you and make sense within the context of your financial planthe larger your allocation to an annuity can be.
When you receive income from an annuity, you don’t have to worry about outliving your savings, which is a major concern for many retirees.
When considering how much of your portfolio to allocate to an annuity, think specifically about how much guaranteed income you need to cover your living expenses. This is known as an income floor. That way, if the market is bad and your investments don’t perform well, you can be confident that you will get through it.
However, if your Social security benefits and/or pension payments already provide sufficient income to cover your living costs; more guaranteed income may not be necessary. (But if you need an expert to further assess your retirement income plan, consider matching with a fiduciary advisor.)
A fixed annuitymeanwhile, pays a guaranteed interest rate regardless of how the stock market performs. Once your payments begin, they are no longer subject to the volatility of market fluctuations stocks, bonds, mutual funds and ETFs Are.