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Should I Add Annuities to My Retirement Strategy?

Annuities can be a great retirement planning strategy since they provide the promise of a continued income stream. But most investors rely on multiple financial vehicles as they consider their retirement years. 

This guide will provide the best ways to add annuities to your retirement strategy and help you determine what type of annuity works best for your portfolio.

How Should You Determine How Much of Your Portfolio Should Be Allocated to Annuities?

There’s no right or wrong way to add annuities to your portfolio. But according to Ty Young, CEO of Ty J. Young Wealth Management, there’s a “good rule of thumb” to follow. Young says, “you should have approximately the percentage of your liquid net worth, equal to your age, completely sheltered from stock market losses.” 

That’s not as hard as it sounds. Some of the best accounts guaranteed against market losses include: 

  • FDIC Insured Accounts
  • Treasury Bonds
  • Guaranteed Insurance Contracts 

Young gives a helpful tip: “If you’re 60 years old, you should have 60% of your money protected against market losses. Annuities can and should, depending on your individual situation, comprise all, part, or some of that 60%.” 

Naturally, this means that as you progress toward your retirement goal, you’ll want to adjust the ratio of your investments in these sorts of investment vehicles, which will give you more stability.

Do Annuities Pose Any Unique Advantages in the Current Stagflationary Environment?

“Stagflation” is a one-two punch that brings together an economic recession with widespread inflation, a situation that is currently destabilizing many sectors of the American economy. 

The stock market is particularly sensitive to these economic shifts, and as the Fed continues to raise interest rates, even stable companies are experiencing a downturn. 

That’s why annuities can be such an asset. According to Ty Young, “the best annuities are completely protected against market losses and can provide a guaranteed rate of return.” In other words, annuities provide stability during periods of economic uncertainty.

Additionally, Young notes that annuities have distinct tax advantages. Annuities grow tax-free until the date that they’re withdrawn, which means that your investment won’t shrink due to tax payments.

How Do You Evaluate All of the Annuities that Are Available?

Admittedly, it can be confusing to try to find the best annuities, especially with so many available. Again, there’s really no right or wrong answer, but Ty Young says that the best annuities: 

  • Are guaranteed against market losses
  • Have no annual fees
  • Offer a reasonable rate of return 

Remember, your goal is long-term growth. You don’t necessarily need to look for explosive returns, though you’ll want a plan that ensures stable progress and protection from losses or fees.

What Type of Annuity Is the Best?

Some annuities are, in fact, better than others. According to Ty Young, “the most popular type [of annuity] is called a Fixed Index Annuity.” 

He explains that it works quite simply: “when the stock market goes up, your money goes up with it. Your gains lock in on an annual basis. When the market goes down, you don’t lose anything. You do receive compound interest, and there are no annual fees.” 

In other words, a Fixed Index Annuity allows you to benefit from gains but shields you from losses, which can provide a greater degree of stability and predictability as you prepare for retirement.

The Best Time to Plan for Retirement

It’s never too early (or too late) to start thinking about retirement. Annuities make a great way to accumulate wealth over time and can become a part of a larger investment strategy. To learn more about your options, contact the team at Ty J. Young today.

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