Investing for Beginners

Annuities
How big will your retirement nest egg be when you retire? Will it last until you're 80 years old? 90? 120?

The good news is that people are living longer these days. Once a person reaches age 62, he or she has better than a 50/50 chance of living 20 years or more. The bad news is that some people are lasting longer than their money. If you're not sure if your money will outlast you, an annuity might be the right way to receive your retirement benefit.

Annuities are really insurance contracts. For example, a life annuity - the most common payment form under the FRS Pension Plan - pays you income for the rest of your life, no matter how long that is. The FRS Investment Plan also offers annuities in addition to lump-sum payment options. Some life annuities continue to be paid to your spouse if you die.

Life Annuity = Guaranteed Stream of Income for Your Lifetime


What's the "risk" in this type of insurance policy? While annuities protect you from outliving your money, some annuities might not protect against inflation. Fixed annuities - those that pay the same amount every time - don't increase when prices go up. In both FRS retirement plans, however, annuities are available with cost-of-living adjustments that provide protection against inflation.

Even though an annuity is a very good way to set up a retirement distribution plan for most people, it's always a good idea to have some other savings readily available in case of financial or medical emergencies.
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