With traditional employer-sponsored pension plans going the way of the dinosaur, more people are turning to income-producing financial vehicles like annuities for cash flow in retirement. An annuity can provide you with a long list of benefits, both before and after you’ve retired. These can include tax-deferred growth, penalty-free withdrawals for qualifying healthcare or long-term care needs, and a lifetime income that will continue for as long as you need it.
But what about using an annuity to create a legacy?
The good news is that there are ways to accomplish this, too, so that your survivors aren’t left to struggle financially down the road. But in order to set up and maximize this type of benefit, it is essential that you have the right type of annuity in place. Otherwise, your loved ones may not receive the financial resources that they were planning on.
Understanding Annuity Death Benefits
One way to create a legacy using an annuity is through a death benefit. With many annuities, if the entire amount of the contribution that was paid into the annuity is not paid out before the annuitant (i.e., the income recipient) dies, the remainder of the contract’s value can be paid out as a death benefit to one or more beneficiaries who are named in the contract.
In some cases, the amount of the death benefit associated with the annuity can grow over time, so it could be more – possibly even much more – than just the amount of the contribution(s) that were made.
Annuity death benefits are typically paid out in one of two ways – either as a single lump sum, or as a percentage of the annuitant’s ongoing income payments. Some annuities may even allow you to set up equal installment payments of the death benefit, rather than having it all paid out in one single lump sum. This can help keep the beneficiary(ies) from spending all of the funds quickly (and possibly in irresponsible ways, rather than using the money for living expenses and other essentials).
It is important to note that depending on the specific annuity and the way you want the death benefit set up, there may be an additional amount of premium required. Also, unlike death benefits from life insurance policies – that are received by the beneficiary income tax-free – this is not the case with annuity death benefits.
What is a Legacy Annuity and How Does It Work?
An alternate option could be to set up a legacy annuity in order to provide benefits for your loved ones. A legacy annuity defers the income payments until a date in the future that you choose.
As an example, if you have a grandchild that is currently 8 years old, you can make a contribution (or contributions) into the annuity, and then choose a time frame – such as his or her 25th birthday – for the payments to begin.
These income payments may continue for a pre-set time frame, such as 5 or 10 years. Or they can keep generating cash flow for your grandchild for the remainder of his or her lifetime – regardless of how long that may be.
Do You Have Your Legacy Plans in Place?
If you own an annuity – or you plan to purchase one in the future – for generating income in retirement, you could also use it to provide your loved ones with some added financial cushion upon your passing. These financial vehicles may also be used for making a charitable contribution at death, or for leaving a legacy in other ways.
So, if you’d like to learn more, contact us at Sooner Retirement. Our annuity specialists are experts in the inner workings of annuities. We can also help you to narrow down which annuity – if any – is right for your specific goals and needs. Plus, if you already own an annuity, we can work with you to compare it with other options that may be better suited for your objectives.
Feel free to contact us any time to ask a question or set up a time to chat with an annuity specialist. You can reach us by phone at (918) 938-7734, or you can send us an email via our secure online contact form. We look forward to helping you protect the ones you love with your own unique legacy.