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5 Times an Annuity Makes Sense for Retirement

By U.S. News & World Report

When it comes to investing for retirement, annuities tend to get a bad rap. Not only do some annuities come with high fees that are hard to justify, but they are notoriously difficult (or impossible) to liquidate when you need cash. Further, some annuities are so complex that even experienced investors can hardly understand them.

So, should you even bother with an annuity? Well, it depends. Not all annuities are created equal. It might be worth giving them a chance if your retirement goals fall under a specific set of criteria. For certain types of investors heading toward retirement, annuities might even be one of the best options available. Here are some of the situations where annuities work best:

[See: 10 Ways to Get Ready for Retirement After Age 50.]

1. You want guaranteed income for life. Many annuities have an option that allows the contract owner to get guaranteed income until they die. This income won’t decrease due to market volatility, making it a smart bet for people whose priority is making sure they have a base income as they age.

2. You hope to secure guaranteed income for a spouse. With certain types of annuities you can add the option to provide a lifetime guaranteed income for not just you, but also your spouse. If this option is selected, the guaranteed income from your annuity will extend until your spouse passes away. According to Arizona financial planner Charles Scott, the insurance company is taking the venture you’ll die before your life expectancy age, while you’re betting you live longer. In the case of your spouse, the same bet is being made. The key to finding the right annuity is a thorough understanding of the financial product. “Shop around, because there will always be some differences in how much each insurance company is willing to pay out,” Scott says.

3. You want a low-risk portfolio above all else. When we talk about “guaranteed” income for retirement, we’re talking about income that requires little risk. As long as you understand the terms of your annuity and fulfill your side of the deal, you can secure guaranteed, no-risk income for life. For retirees who fear volatility in the markets or running out of money, annuities can make a lot of sense, says Indiana financial advisor Tom Diem of Diem Wealth Management. “Annuities are safe and tend to outperform bank certificates of deposit,” Diem says. However, the way annuities work requires you to lock your deposits into pools of money drawing historically low interest rates. While your return is low-risk and often guaranteed, “One’s expectations for return must be accordingly low,” says Diem.

[See: 10 Tax Breaks for People Over 50.]

4. You want to create your own pension. Decades ago, workers relied on guaranteed pensions to fund retirement. Today, very few workers enjoy this level of financial security. That’s why retirement today has become increasingly difficult, says Alex Whitehouse, a financial advisor in Vancouver, Washington. “Retirees used to count on the three-legged stool for their retirement income: Social Security, employee pensions and individual savings,” Whitehouse says. Now, only a small fraction of private sector companies provide traditional pension plans. “An annuity could be used to generate lifetime income and replace the pension leg of the stool,” Whitehouse says.

5. You want to protect your retirement assets from taxes. Traditional retirement accounts like IRAs and 401(k)s grow tax-deferred, meaning you don’t pay taxes on your money until you begin making withdrawals. Annuities also provide tax benefits. “Using an annuity for a portion of your assets will allow your money to grow tax-deferred,” says Seattle financial advisor Josh Brein. “So, if you’re not planning on taking all the money out for a while, then an annuity could be a good way to reduce your tax load in retirement.”

[See: 10 Ways to Repair Your Retirement Finances.]

How to decide if an annuity is right for you. While annuities can make a lot of sense for retirees who worry about longevity risk and want guaranteed income, there are certain risks to watch out for. “Buying guaranteed income with an annuity is usually a very expensive proposition, especially at today’s interest rates,” says Grant Bledsoe, a financial advisor for Three Oaks Capital Management in Lake Oswego, Oregon. “Additionally, insurance companies and salesmen will normally push their more expensive variable and index annuities.” These products are very rarely the best place for your money, due to their hidden and often misunderstood expenses. “Never buy an annuity if you don’t understand it inside and out,” Bledsoe says.

Not only should you research annuities and ask questions before you pull the trigger, but you should also sit down with a financial advisor to set your priorities. While guaranteed income for life sounds good, you may find that you have other important goals to shoot for. “If a low-risk portfolio is more important than hedging against inflation, or lifetime income outranks leaving an inheritance, an annuity could be considered,” says Benjamin Brandt, a financial advisor in North Dakota. But don’t make any big decisions until you sit down to hash things out with your advisor and spouse.

Jeff Rose is a certified financial planner, U.S. combat veteran and the founder of GoodFinancialCents.com.

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5 Times an Annuity Makes Sense for Retirement originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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