For starters, an annuity is a long-term contract with an insurance company that is intended to provide a guaranteed income stream when you retire.
There are two primary ways to categorize annuities:
Fixed vs. Variable Annuities
With fixed annuities, you receive a fixed rate of interest for a predetermined period of time. Both your rate of return and payout are guaranteed.
With variable annuities, you customize a mix of stocks, bonds and/or mutual funds consistent with your investment goals and risk tolerance.
Immediate vs. Deferred Annuities
With immediate annuities, you start with a large sum of money and begin receiving regular payments one period after your initial purchase.
Deferred annuities accumulate value over a period of several years, with payments beginning at a later time determined by the individual.
Annuities come with additional options that you may want to discuss with your financial professional.
What Are the Advantages of Annuities?
As with all financial products, annuities may be a more optimal choice for some individuals than for others.
Here are a few of the potential advantages that annuities may offer:
What Are the Disadvantages of Annuities?
Before purchasing an annuity, here are a few possible drawbacks you’ll want to be aware of:
Source: Resource Center Inc.
Did You Know?
Source: Employee Benefit Research Institute 2019 Retirement Confidence Survey, issued April 2019.
Americans are living longer than ever, many 20 to 30 years after they retire. A solid financial plan for retirement means more than just setting—and reaching—a savings goal. It’s important that you have enough money to meet your financial needs for many years.
One way to guarantee a steady stream of income for life is through an annuity. An annuity is an insurance contract that can help you build savings for retirement and convert your savings into income you cannot outlive.
With an annuity, an insurance company agrees to make a series of income payments—or payouts—to you in exchange for the premium(s) that you pay. An annuity is a long-term retirement security product. It is not meant to be used to meet short-term financial goals. An annuity is the only financial product that can guarantee lifetime income.
Types: There are different types of annuities and many options available to meet a variety of financial objectives. [Read more]
Features: The unique features of annuities make them the only retirement security product that can provide a guaranteed income for life. [Read more]
Access to Your Money: Annuities offer flexibility in the way you can receive payouts or withdraw your money during the accumulation phase. [Read more]
Costs and Fees: The ability to guarantee income for life, and other features, such as death benefits, are included in the cost of an annuity. [Read more]
Tax Treatment: A variety of factors can affect the tax treatment of an annuity. [Read more]
Consumer Protections: Life insurance companies that issue annuities are regulated by state insurance departments to protect consumers. [Read more]
Get all the Facts on Annuities