Annuities

Annuities can help you protect what matters most as you work towards a long and fulfilling life in retirement. As one of the few investment solutions that ensures you won’t outlive your money, these make a great addition to your portfolio because they offer guaranteed lifetime income when you reach retirement.

If you have ever wondered what an annuity is, or if you’re considering buying an annuity, it’s essential to understand the different types of annuities and how they work. On this page, we provide you with a comprehensive overview of annuities, including what to consider before making a decision. This information should help you decide if an annuity is right for your retirement plan.

What are Annuities?

An annuity is a contract between you (the annuitant) and an insurance company that you can purchase through life insurance agents, financial planners, banks, life insurance companies, or an investment broker. Then, through a combination of savings and investments, you pay a lump sum or series of premium payments to the insurance company. In return, the insurance company provides income payments to you in your retirement, whether periodically or all at once.

The first thing you should know about annuities is the widely varying terms and differing costs. In addition, most annuities offer tax advantages with your investment earnings growing tax-free until you start to withdraw the income. Some provisions penalize you if you withdraw funds early. However, most allow you to make withdrawals for qualified purposes without penalty. Here are a few main points about annuities to keep in mind:

• The goal of an annuity is to provide a steady stream of income, typically during retirement, with many aspects of the annuity tailored to the specific needs of the buyer.
• Annuities provide a fixed monthly income either for a set period or for the rest of your life. The monthly lifetime payments are determined by your age at purchase and your life expectancy.
• An annuity should not be your sole source of retirement income, as inflation reduces its value over the years.
• There are four different types of annuities—immediate, deferred, fixed, and variable— in three main varieties—fixed, variable, and indexed. Each has its level of risk and payout potential.

Different Types of Annuities

In order to understand annuities, you need to learn about the different types of annuities and how they differ from each other. Four basic types of annuities are designed to meet your specific needs and allow you to purchase one that best fits your comfort level: immediate, deferred, fixed, and variable. These offer unique features serving different purposes but are based on when you want to begin receiving payments and how you would like the annuity to grow:

When you begin to receive payments: You can receive annuity payments immediately after paying the insurer a lump sum (immediate) or by receiving monthly payments in the future (deferred).

How you want your annuity investments to grow: Annuities can grow in different ways—through interest rates (fixed) or by investing your contributions in the market (variable).

Key Takeaways

There are over $200 billion in annuity sales every year. When done right, annuities can help provide you with cash for your later years. No one should live in fear of outliving their hard-earned income, and annuities offer a sense of income confidence. Therefore, they make sense as part of your overall retirement plan, especially if you’re concerned about outliving your assets.

As you decide between the different annuity options, use the following takeaways as further research on deciding which annuity is best for you:

• Annuities are insurance contracts that promise to pay you regular income immediately or in the future.
• There are four types of annuities—immediate, deferred, fixed, and variable.
• Immediate annuities pay income right away, while deferred annuities pay at a future date.
• Fixed annuities are insurance contracts that pay a guaranteed interest rate on the account owner’s contributions.
• Variable annuities pay a rate that varies according to the performance of an investment portfolio
• Deferred annuities are insurance contracts that promise a regular income or a lump sum of money at a future date.
• Annuities provide tax-deferred investment growth, but the owner has to pay income taxes on the money when it’s withdrawn. Most annuities penalize early withdrawals, with sometimes high fees.

 

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Annuities are a financial vehicle designed to provide guaranteed lifetime income through a combination of savings and investment with the benefits of certain insurance protections. An annuity is a contract issued between an insurance company and a person (the annuitant) who pays premiums in exchange for the insurance company to take on the risk of providing a monthly income stream for the rest of their life (and sometimes carried over to beneficiaries). Because annuities will guarantee money from any losses, they are often used as a strategy to protect money from ups and downs in the stock market or by being abused or squandered by the beneficiary. Annuities ensure that an income stream will continue without risk or interruption.

There are various forms of annuities that can provide immediate or deferred income depending on when the annuity owner wants the payments to begin.

• Fixed annuities avoid market volatility and guarantees income for life
• Variable annuities can grow in value with the market but are also exposed to market risks
• Equity-Indexed annuities guarantee a minimum rate of return and tax-deferred growth
• Life Annuities provide survivor beneficiary options
• Annuities w/ LTC-Rider provide favorable options to use funds for LTC purposes that can increase the available annuity value to be used for care

Annuities have no limits to the amount of money that can be saved, provide tax-deferred growth, have no minimum required distribution requirements, can provide growth while eliminating risk from market volatility, and will protect the money from fraud or abuse.

Life Settlement Annuities are a way to liquidate an unneeded or unwanted life insurance policy and then roll the proceeds into a variety of annuity options designed specifically to address the financial needs of seniors and people in retirement. Life settlements can pay 5x-10x more than cash surrender value, providing for much higher liquidity from a life insurance policy to fund an annuity and establish a lifetime income stream.

It is always best to work with information and experts to help you navigate these tricky issues, visit Retirement Genius today to learn more about how to Retire Like a Genius!