An annuity is a unique financial product that provides tax deferral of interest and capital gains and has the option of a guaranteed monthly income for life. Although annuities can serve various financial goals, their primary purpose is as a retirement income vehicle.
There are several types of annuities available to serve a variety of our clients’ needs.
Fixed annuities are like a savings plan with an insurance company rather than a bank. You benefit from tax deferment on the growth of your savings.
We recommend fixed annuities for people planning their retirement income because your principal is preserved and you will be paid a guaranteed minimum interest. As you near retirement, you have options for withdrawing your money including receiving monthly payments.
A variable annuity can be an important part of your retirement plan if used wisely. As it involves market investing, a variable annuity is most suitable as a long-term investment.
There are two types of variable annuity accounts: fixed and variable. In a fixed account, the insurance company guarantees principal and interest for a set period of time, often one year.
In a variable account, the annuity owner bears the investment risk. Annuity value varies directly with the performance of the underlying investment vehicle and could result in financial loss. Just as with other market instruments such as mutual funds, a variable account should be carefully chosen and its risks and potential rewards well understood.
Variable annuities do guarantee that in the event of death, the beneficiary will receive at least the original investment.
Indexed annuities allow the owner to participate in the stock market through the S&P 500 or other indexes without risking principal. You enjoy the upside potential of equities but are not exposed to their downside risk. The annuity value increases if the index does well, but will never decrease even if the market moves downward.
Annuities can be an essential strategy in your retirement plan. However there are many complex points to consider. It is important to work with an insurance agent who will give you unbiased information and put your needs and goals first.