What Are Annuities?

An annuity is a financial product that lets you invest money in exchange for a guaranteed income stream paid either to you or your beneficiary. In return, you receive regular payments, often for the rest of your life. There are various types of annuities, each designed to suit different financial goals and needs:

• Fixed Index Annuity: Offers returns based on the performance of a stock market index but with protection from market losses.
• Variable Annuities: Allow for investment in various sub-accounts and offer the potential for higher returns, though they come with more risk.
• Deferred Income Annuities: Start payouts at a future date, allowing you to create a dependable income stream later in retirement.
• Guaranteed Minimum Income Benefit (GMIB): This rider provides a minimum level of income for life, regardless of market performance, ensuring that you receive a steady stream of payments.

Why Consider Annuities?

1. Guaranteed Income for Life: Annuities provide guaranteed income that can last for as long as you live, offering financial security during your retirement years.
2. Legacy Planning: Some annuities allow for funds to be passed on to heirs, making them a useful tool in estate planning.
3. Tax-Deferred Growth: Earnings on annuities are tax-deferred, allowing your investment to grow without being taxed until withdrawal.
4. Flexible Options: Whether you prefer the stability of a fixed annuity or the potential growth of a variable annuity, there’s a solution to suit your specific needs.

1. Fixed Index Annuities

A fixed index annuity provides a balance of security and growth. Your returns are tied to the performance of a stock market index, but your principal is protected from losses in down markets. This type of annuity is ideal for those seeking guaranteed income with the potential for moderate growth.

2. Variable Annuities

For those with a higher risk tolerance, variable annuities offer investment flexibility through sub-accounts. While these carry more risk, they also offer the potential for greater returns. In addition, guaranteed minimum income benefits can be added to ensure that income is guaranteed, even if your investments underperform.

3. Deferred Income Annuities (SPIA)

A Single Premium Immediate Annuity (SPIA) provides a guaranteed income stream in exchange for a one-time lump sum payment to an insurance company. This type of annuity is ideal for individuals who want to secure immediate and reliable income, starting right away, while transferring the investment risk to the insurer.

What is the difference between a fixed index annuity and a variable annuity?

A fixed index annuity provides a guaranteed return tied to a stock market index, with protection from market losses. A variable annuity, on the other hand, allows investment in various sub-accounts and has the potential for higher returns, but it also carries more risk.

What is a Guaranteed Minimum Income Benefit?

A GMIB is a rider that can be added to an annuity contract to provide a minimum income for the annuity holder. This GMIB is guaranteed for their lifetime regardless of the performance of the investments or the account balance.

Can I use an annuity for legacy planning?

Yes, some annuities allow you to designate beneficiaries who can inherit the remaining balance of the annuity after you pass away. This can be a valuable part of your estate planning strategy.

Are annuities taxable?

Annuities grow on a tax-deferred basis, meaning you won’t pay taxes on the earnings until you begin withdrawing funds. Once you start taking withdrawals, they are subject to income tax.

When should I consider purchasing a deferred income annuity?

A deferred income annuity is a good option if you're looking to ensure you have a steady income stream later in retirement. These annuities allow you to defer income payments until a future date, which can help protect against outliving your assets.

Fixed and Variable annuities are suitable for long-term investing, such as retirement investing. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply. Variable annuities are subject to market risk and may lose value.