Why You Should Be Using Annuities In Your 401k

Annuities add major benefits to 401k plans. Who should be using them? Not everyone.

If you are strictly looking for return on investment then do not use annuities in your 401k. If you are interested in learning more about guarantees then annuities could be for you. Annuities offer guarantees that are rare in the investment world and basically absent in the 401k. What kind of guarantees do annuities offer?

The first and most traditional is the death benefit. The death benefit is a guarantee for your heirs. It acts as a high water mark for your principal balance. For example, your annuity is worth $500,000 and then one year later you die when the market is down and your annuity is only worth $300,000. If your annuity has a death benefit then your heirs would receive $500,000 not $300,000. It is a great benefit to add especially if you have known health problems that are going to shorten your life span. A lot of insurance companies include the death benefit in all of their annuities. It used to be standard on all variable contracts but sometimes it is now an option.

The most important guarantee is the income guarantee. The income guarantee guarantees a minimum level of income for life. It is based on a percentage of assets and your age when you start the income stream. You do not lose access to principal like the old annuities where you had to annuitize to get an income stream. This guarantee creates a base level of income from which to plan your entire retirement. Planning becomes simple with the income guarantee.

To learn more annuity guarantees in relation to a 401k read - How Much To Invest In 401k Annuity Options

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