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Clear Up Your Confusion About Annuities

Many people are still confused regarding how annuities work and why they would want one. There are really three categories of annuities that you need to be aware of as they are very different in the way they perform and the ways they are used for income, savings, or investment.

Immediate Annuities

Immediate Annuities are designed to create an immediate stream of income for either a lifetime or a certain period of time. These are sometimes called “personal pensions.”

Deferred Annuities

Deferred Annuities (fixed and indexed) – are a savings vehicle and have no chance of loss. They can have fixed interest rates or can be linked to an index.

Variable Annuities

Variable Annuities are an investment vehicle and do have a chance of loss. We do not recommend or sell variable annuities. We feel you should only consider these in rare instances as they come with high fees and penalties for an early withdrawal.

How Immediate Annuities Work

Immediate Annuities are used to provide a guaranteed income for a certain period of time or over your lifetime. Immediate annuities are usually funded with a single deposit, and income payments will start within the year.

There are many options for payouts including life pay, period certain, or even combining the two. This means you can get lifetime income, but you are also guaranteed a minimum amount of payments. If you pass away early, your beneficiaries will receive the remaining payments.

There are also joint immediate annuities which will guarantee a payment for the lifetime of both people.

Immediate annuities are a way to provide a personal pension which guarantees you a lifelong stream of income.

How Deferred Annuities Work

Deferred Annuities are tax-deferred savings accounts that allow you the ability to grow your money without the risk of loss.

Unlike Bonds, Certificate of Deposits (CDs), or Savings Accounts, deferred annuities do not require you to pay tax on the interest as it is gained. Instead, you can defer it for as long as you keep the account open, and you can even roll it into another annuity to keep the tax-deferral going.

Many annuities also allow you to access a portion of the account each year without paying a penalty (which you cannot do with CDs).

Deferred annuities come in two versions: fixed and indexed.

Fixed Annuities

Fixed Annuities are also known as Multi-Year Guarantee (MYG), meaning they provide a guaranteed interest rate for a fixed period of time just like a Certificate of Deposit (CD). You can lock in a rate for a number of years with common offerings of 3,5,7, and 10 years.

The interest is not taxable in the year you earn it as it is on CDs and savings accounts. You may defer the interest until you take the money out or you may roll it into a new annuity and continue to defer the interest. This allows your money to compound and grow at a higher rate than a comparable CD or savings rate.

Indexed Annuities

Indexed Annuities are savings vehicles that allow you to link the growth rate to an index such as a stock market index. They will allow you limited upside potential without the risk of loss.

For example, you may get the first 5% of the market increase but if the market goes down, you do not lose your principal or your prior year’s gain.

Indexed annuities will give you a chance of earning a higher rate of return than a fixed rate annuity and still protect you from loss.

How Variable Annuities Work

Variable Annuities are investment vehicles and do not protect you from loss. Variable annuities will allow you to grow money in a tax-deferred account outside of retirement accounts but are subject to the ups and downs of the market. Variable annuities must be sold by a licensed financial advisor and are subject to fees and the possibility of loss of principal.

You Shouldn’t Have to Find Annuities on Your Own

The options for annuities are confusing, and the stakes for you and your loved ones are too high to feel uncertain about your decisions.

We’ve spent the last decade advising thousands of people like you on their options.

We’ll help you:

  • Understand Your Options
  • Choose the Right Annuity
  • Get It Set Up

Contact Us to schedule an appointment to discuss your options.

You and your loved ones deserve to feel confident about the future, and you can have the security of knowing you have the right financial protection in place.

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