In Your Interest – by Valerie Rumbough

Valerie Rumbough

Valerie Rumbough

Rumbough, CPA, CFP, is executive vice president and chief operations officer with the Baptist Foundation of South Carolina

Should an annuity be part of your retirement planning strategy? This question has come up a lot lately, especially with the uncertainty of the market.

Valerie Rumbough

As you near retirement, your portfolio should be invested in safer investments, so that a market fluctuation right before retirement won’t affect you a lot. However, many are afraid that they may miss some “great” returns if they invest too safely.

How do you know what to do? Sometimes people choose to diversify their portfolio by investing a portion in either a commercial annuity through an insurance company, or a gift annuity through a foundation or charity.

How does this work? Typically an annuity guarantees a fixed income for the life of the annuitant. Your payments neither go up or down. This can protect you from a down market. Remember, however, that an annuity goes away when the annuitant dies. The risk is that if you live a long life, you have guaranteed income, but if you pass away a year after purchasing your annuity, either the charity or the insurance company receives the remaining funds.

For those who want to be charitable, this is a great way to do so, and can be part of your gift planning through your estate. There are variations to some commercial annuities, such as a survivor’s benefit, and inflation protection. However, these can be very costly, because of the reduction in the payments to the annuitant. You should carefully weigh the product’s features before determining whether to purchase one or not. Seek the advice of a fee-based financial planner or your CPA. They can offer guidance that is in line with your overall financial picture.

Above all, exercise prudence. God is pleased when we plan wisely.

 

Rumbough, CPA, CFP, is chief operations officer with the Baptist Foundation of South Carolina. Contact her at (800) 723-7242. In accordance with IRS Circular 230, any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.