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What Is An Annuity?


Reasons For Buying Fixed Annuities


Think of the annuity as your financial basement. Laying that foundation will guarantee you have the money to meet your living expenses.

In the past, people believed that annuities were for only wealthy individuals or families with a need to either shelter assets or ensure that large amounts of income would be guaranteed. But now more middle and lower income families are purchasing annuities to ensure that income continues in retirement. This is especially true as life expectancy for both men and women has increased dramatically of the last 40 years. Annuities are really the only investments that provide options for guaranteed income, a guaranteed return, or a guarantee of the Principal.

There are several variations and countless products to choose from, however they all share these common traits:

Tax Deferred Growth

The taxes on the growth of an annuity are deferred. This in essence gives you a better rate of return than some other investment products, because the income that you would have paid in taxes is still working for you.

Principal Guarantees

The safety offered with fixed annuities is perhaps the most important feature to most consumers. As long as you follow the contract rules, and the insurance company remains in good standing, the fund put into an annuity are never at risk.

Fixed, Competitive Interest Rates

Typically speaking, fixed annuities usually offer a higher interest rate than similar products, such as a bank CD or a money market account.

Types of Fixed Annuities

Traditional Fixed Annuity

The traditional fixed annuity is structured very similarly to a bank CD (certificate of deposit). The premium grows at a guaranteed fixed interest rate for a set amount of time. The length of the contract can range anywhere from one year, to as long as 15 years.

Fixed Indexed Annuities / Equity Indexed Annuities

Fixed Indexed Annuities, also referred to as Equity Indexed Annuities, provide the same principal guarantees of a traditional fixed annuity, however the rate of return is based on the performance of an index, such as the S&P 500. The insurance company will credit the account with a portion of the indexes upside growth, while offering protection against downturns in the market.

Immediate Annuities

Immediate Annuities convert a lump sum amount of money into guaranteed income to the annuitant as soon as the annuity is purchased. The annuitant may choose from a lifetime income stream, which provided the income for life, or a set time frame (usually 5, 10 or 20 years).

Common Annuity Terms:

Surrender Charge

The surrender charge of an annuity is the penalty or fee applied to the account if it canceled early. The most common structure is a decreasing surrender charge, where each year the surrender charge becomes smaller, until it is gone completely by the end of the contract length.

Premium Bonus

Premium bonus is a term used to describe a feature found on many annuities, in which the insurance company essentially adds ‘extra’ money to the account during the first year. The bonus can be in the form of a higher first year interest rate, or a partial premium match by the insurance company.

Call or email me today and let me help find the right annuity product for you.