Annuities and financial rebounding for your family

Are you saving for retirement? If you answered "no" to that question, you're not alone. 

A new study from the National Institute on Retirement Security shows only 10 percent of Americans have saved enough money to put them on track to retire. In fact, the balance of the average household’s retirement assets is a shocking $3,000. 

If you're looking to beef up your retirement savings, one option you may want to consider is an annuity, as they provide stability and low-investment minimums.

Here's the low-down on what annuities are, what to look for, and how to plan.

Annuity Basics

Annuities are popular among investors who want a steady income stream during their retirement years. Investing in an annuity provides regular monthly, quarterly, annual, or lump sum payments. Unlike many investment products, you know what your income is going to be and when you'll receive it.

Fixed Annuities

If you're familiar with CD investing, then you already know a little about the foundation of a fixed annuity. Like CDs, fixed annuities guarantee a specific rate of interest for a period of time. You can re-invest your money again after that set time expires, but you typically get a new interest rate, depending on the market.

If you're worried about having enough money to retire with after sending your kids to college, you can defer the fixed annuity. This allows for an accumulation of interest and potential for a stable income stream. And unlike the high minimum investment of many retirement products, a fixed annuity usually runs just $1,000 to $10,000 for an initial investment.

Variable Annuities

When you purchase a variable annuity from an insurance company, they ensure periodic payments to you at an agreed date. Unlike a fixed annuity, variable annuities vary, depending on how the investment option you picked performs. If that sounds overwhelming, it's not. It just means you're investing in mutual funds that invest in stocks, bonds or money markets on your behalf.

The potential upside to variable annuities is you can opt for periodic payments for life, and they also have a death benefit. If something happened to you, your family would continue receiving payments. And, according to the U.S. Securities and Exchange Commission, you also don't have to pay taxes on variable annuities until you physically withdraw the money.

Upsides & Downsides

Annuities have the potential to secure income into your retirement. This is crucial for people who have no idea what the next five years will bring financially, let alone 25 years. Be aware — some investors frown upon annuities because of typically high fees. It may cost roughly 2 to 4 percent a year for the company you invest with to maintain the annuity.

Selling Annuities

For those who already have structure payments, you probably opted to forgo a lump sum payment or were told told you had to accept periodic payments over time. The latter may have been true at one point, but now there are other options. During the 1980s, a secondary market was legally created to buy and sell annuity payments and structured settlements. This is good news if you need more money in the short-term, such as if you're buying a house, paying for kids' college tuition or paying for a job relocation. Contact a specialist to discuss your options and long-term financial goals.

Jessica Horton is a former copywriter and community manager at MMI.