Preparing for your retirement needs careful planning to ensure you get the right benefits after years of hard work. Combining annuities and life insurance can be one way to achieve a comprehensive plan that sets you on the right track for a relaxing retirement.
You can use both annuities and life insurance as part of your retirement strategy. This approach delivers several benefits, depending on your specific financial situation.
What Are Annuities and Life Insurance?
First, let’s look at the two options. With an annuity, you pay a regular premium in exchange for a guaranteed stream of income to cover your living expenses during your retirement. This could be for a fixed length of time or for the rest of your life—you can choose from different types of annuities to match your financial capacity.
Meanwhile, life insurance helps your loved ones manage financially after your passing. You pay a premium in exchange for a death benefit. Your beneficiaries will receive cash when you die to cover any expenses they need to, like paying for your funeral, replacing lost income, covering debts and more.
1. Guaranteed Income and Death Benefit
Combining annuities and life insurance can give you a reliable source of income during your retirement years, as well as a death benefit for your beneficiaries after you die. You have the option to use a portion of your life insurance policy’s premiums to purchase an annuity, allowing you to maximize your coverage.
Purchasing what’s known as a period-certain annuity offers a similar benefit. This type of annuity provides guaranteed income within a certain period, such as 10 years. If you pass away during that period, your beneficiaries will continue to receive your income until its expiration. Compare this to a conventional life annuity, which pays out until you die (an uncertain period of time).
It’s important to work with a qualified insurance professional to identify the best ways to combine annuities and life insurance.
2. Tax Advantages
Both annuities and life insurance policies offer tax advantages that contribute to improving your retirement plan.
Annuities offer tax-deferred growth, which eliminates the need to pay taxes on your earnings until you withdraw them, reducing your tax liability while your annuity increases in value. Meanwhile, life insurance proceeds are generally income-tax-free for your beneficiaries.
Uniting your annuity and life insurance diversifies your retirement portfolio. Annuities let you forecast and conserve your source of income, while life insurance assures a potential lump sum payout to your beneficiaries.
This diversification helps manage risk and protects your retirement savings from market fluctuations. It further balances your retirement planning and asset management.
4. Estate Planning
You can use life insurance as part of your estate planning strategy to transfer your wealth to your heirs in a tax-efficient manner. Combining annuities and life insurance further provides you with a comprehensive estate plan covering both lifetime income generation and a legacy for your loved ones.
Other than the smooth transfer of wealth, you can expect the following benefits:
- Improve control over the distribution of assets after death.
- Avoid probate, which makes the processing of death benefits time-consuming and expensive.
- Minimize estate and other taxes that may be due upon your death.
- Use annuity payments to cover ongoing expenses.
- Ensure the fair share of the inheritance.
5. Peace of Mind
Overall, both annuities and life insurance promote peace of mind for you and your loved ones. If you want to know for certain that you won’t run out of money in retirement, annuities can help. And with life insurance, you can be assured that your loved ones will be financially protected when you die.
Having both annuities and life insurance gives you more flexibility and control over your financial assets. More importantly, this approach helps address your care costs, bills, debts and other financial expenses.
Retirement should be carefree and relaxing—financial certainty is a key part of making sure you can enjoy this period of your life. Working with a qualified insurance professional is the best method when considering annuities and life insurance. Your insurance professional will explain your options and guide you to a solution that maximizes these advantages. If you don’t have an agent or advisor yet, you can look for one in your area with Life Happens’ Agent Locator.