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Annuity vs. 401K: What Are the Differences? 

As you think about the right way to save for retirement, there are many decisions to make. The best way is dependent on your personal needs and financial situation. As you explore your options, you may have questions about various saving plans, including 401ks, annuities, and more. While annuities and 401ks are similar, there are some distinctions that are important to understand. Here’s an overview of the differences between an annuity vs. a 401k—to learn more or to get help with your personal retirement plan, reach out to Top Investment Solutions directly today.

What Is an Annuity?

If you’re looking for a guaranteed income stream at the time that you retire, then an annuity is a good option for you. The purpose of an annuity is to provide a consistent stream of income for those in their retirement years, eliminating the fear of a person outliving their savings. An annuity begins with an accumulation phase—during this phase, the annuity is being funded and money put into the annuity grows on a tax-deferred basis. The annuitization phase is the phase when payments commence.

Note that an annuity is a contract between an insurance company or financial institution and an investor—the individual who will receive the payments during the annuitization phase. Annuities can be purchased with monthly premiums or a lump-sum payment. 

What Is a 401k?

In contrast to an annuity, a 401k is a tax-deferred retirement savings account that an employee is eligible to access through their employer. The employee contributes money to their 401k on a regular basis, and the employer may offer matching contributions. The money that’s put into the 401k is invested, usually in mutual funds or exchange-traded funds (ETFs). 

How Should I Plan for Retirement?

If you have the option to set up a 401k or another tax-deferred retirement savings plan, you should certainly do so. If you’re worried that even with your tax-deferred retirement savings you may still not have enough to support yourself during retirement, purchasing an annuity may be a good option. However, it’s best to speak to a financial professional who can review your financial situation and make a recommendation based on your needs. 

Call Top Investment Solutions Today

To learn more about saving for retirement and the difference between an annuity and a 401k, call Top Investment Solutions directly today. Our financial professionals can help you to create a savings strategy today that will prepare you for the day when you’re no longer working. Reach out to us by phone or online to get started.

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