Annuities are insurance contracts between you and an insurance company in which the company promises to make periodic payments to you, starting immediately or at some future time. Annuities are popular because they can offer tax-deferred savings for retirement and a choice of income options to meet an individual’s needs in retirement. As Americans live longer lives and have longer retirements, long-term thinking has become more essential. Many are turning to annuities to bridge the gap between savings and the prospects of a long life: Annuities are the only financial product that can turn a sum of retirement savings into guaranteed income for life. Some annuities also provide guaranteed income for a surviving spouse or dependent.
Finding a way to make savings last is a challenge for today’s workers and retirees. Fewer workers today are covered by traditional, employer-sponsored pension plans promising life-long benefits and Social Security is not likely to provide future retirees the level of benefits it provides today. Because an annuity can provide lifetime income it helps offset worries many people have about managing their finances, running out of money in retirement, or living more frugally than they need to. No other personal financial product offers guaranteed income for life.
An annuity is a flexible retirement planning tool. It can be purchased over time (through a series of premium payments) or with a single lump sum. It can accumulate value that is based on a fixed interest rate or through investments in equities. You choose how and when payouts are made to you.
- Meet your retirement income goals.
- Have a lifetime income.
- Protect against outliving your assets.
- Protect your assets from creditors.
- Tax deferral on investment earnings.
- Benefit your heirs.
- Plan your estate.
Types of Annuities
Indexed Annuities are a type of tax-deferred annuity whose return is indexed to an equity index, but which also guarantees a minimum interest rate and against a loss of all or most principal. The objective of purchasing an indexed annuity is most often to realize greater gains than those provided by fixed annuities, while still protecting principal.
Unlike traditional fixed annuities, the policy owner may receive zero interest for a single period on a specific premium payment if the index performs poorly. However, with most Equity-Indexed Annuity policies, the premiums are protected and guaranteed to grow over time. This is a feature unavailable with any form of direct participation in the marketplace, such as through a mutual fund or a variable annuity.
In better market conditions, the owner of an Equity-Indexed Annuity may experience interest credits that outperform traditional fixed annuities. Because it is an annuity rather than a mutual fund, an Equity-Indexed Annuity offers important insurance features including tax deferral, a death benefit that may be paid outside probate, and annuitization.
Fixed Annuities are the traditional form of annuities. The insurance company guarantees both the rate of return and the payout. Fixed annuities offer a declared fixed interest rate that is guaranteed for a specific period and guaranteed to never go below a specific percentage.
Immediate Annuities are a type of annuity where you are guaranteed an income stream ranging from a specific period of time to your entire life. An immediate annuity offers a solution to the problem of outliving your money.