What Is An Annuity?

An annuity is one way you may be able to help fund your retirement years. An annuity is a contract between you and your insurer that can be used to provide income during retirement, says the Securities Exchange Commission (SEC).

When you invest in an annuity through a lump sum or by making periodic payments over several years, your insurer in return agrees to make regular payments to you that can last the entirety of your retirement, says the SEC.

How Can an Annuity Help You?

Do you know how much money you will need in retirement? Have you considered what could happen if you outlive your retirement savings?

No matter how well you plan, factors like inflation, tax hikes and increased medical expenses can potentially eat away at your retirement savings, forcing you to suffer a lower quality of life or rely on your family for financial support in your golden years. An annuity can help you avoid a future dilemma and safeguard your financial security by providing you with guaranteed income throughout retirement. In fact, you can structure an annuity to pay you for the rest of your life, even if you live to be 100. You can also use annuities to transfer wealth to the next generation while avoiding probate.

The best part? There are no monthly premiums, and your annuity is guaranteed to never lose money. For a free annuity quote and personalized help with your retirement planning, simply fill out the form on the right. Our highly trained annuity specialists are happy to explain the options available to you, and help you find the right annuity to fit your income needs.

Advantages of Annuities for Retirees

Annuities can be an attractive retirement income choice for a number of reasons, including:

  • Tax Deferral: You don’t pay taxes on the income and investment gains from your annuity until you begin receiving payments, says the Insurance Information Institute (III).*
  • Lifetime Income Stream: If you choose to receive annuity payments with a lifetime contingency, an annuity can provide an income stream for the duration of your retirement, the III says.**
  • Death Benefit: Should you pass away before you begin receiving payments, the person you name as a beneficiary will receive a specified payment, according to Investor.gov.

Depending upon your state of residence, annuities may also offer other benefits, such as protection of your investment from creditors. For these reasons and more, an annuity may provide you and your family with increased financial security during your retirement.

Types of Annuities

Before choosing an annuity, it’s important to understand the different types and how they might affect your financial picture. The main categories of annuities include:

Fixed Annuities

A fixed annuity offers a specified interest rate during the accumulation phase, or the period during which your value is growing in the annuity. When you are ready for your stream of payments to begin, the value of your funds is turned into a steady stream of payments that provide a specified payment for either a certain period of time — say, 20 years — or for an indefinite period, such as your lifetime or the lifetime of you and your spouse, the SEC says.*

Variable Annuities

In a variable annuity, you direct funds accumulating in your annuity to investments of your choice that are offered by the insurance company — typically mutual funds, according to the SEC. Your income stream in retirement is dependent upon how well your investments performed during the annuity’s accumulation phase, the SEC says.

Indexed Annuities

An indexed annuity provides you with a return that is tied to a major stock market index, such as the Standard & Poor’s 500 Composite Index, says the SEC. During the accumulation phase, your investment’s rate of return reflects the performance of the selected index. However, these annuities typically also offer returns that are no less than a specified minimum, no matter the index’s performance.

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