An annuity is an insurance product used to plan for retirement. The great thing about an annuity is that they pay out a steady income stream when you retire, which can be used to supplement your other pension accounts, or on your own. Annuity has advantages and disadvantages:
- An annuity can give you the income you need to enjoy life during your golden years, with the income coming in a steady stream to use as you need or desire.
- Some annuities allow you to withdraw lump sums, either once or at different times.
- The money you invest in an annuity grows tax-free. It is taxed only when you receive funding.
- These plans can be tailored to suit the individual, both in terms of budget and needs. Some annuities offer expenses for long-term care.
- An annuity guarantees an income stream for life.
- “Indexed”; annuities allow you to get the income you need regardless of the ups and downs of the stock market – you can count on the funds every month.
- Annuities come with fees, and you have to balance payment fees against the benefit of an income stream you can count on.
- There are many types of annuities, and it can be difficult to know which one is best for you.
- Consumers can be confused by all the options.
- An indexed annuity has a performance ceiling, so when the stock market is on a steep upward trend, you will not get as much as you would with some other investments.
- The income you get is taxed. Do not forget that it was a tax deferred investment. It is taxed as “ordinary income”, as are 401k dividends.
- Once you have passed away, your beneficiaries may receive a lump sum or a steady stream of payments from any remaining funds in your account.
Types of annuity
While there are several types of annuities. Annuities come in many sizes, shapes and forms, and in three main types:
- Variable annuity: These are annuities based on the results of sub-accounts (similar to a mutual fund).
- Fixed annuity: These annuities guarantee that the funds will increase at a certain rate. The type of annuity can vary, with some having a new interest rate annually or at different times.
- Indexed annuity: These annuities pay an interest rate based on the result of a named market index, such as the S&P 500 or Nasdaq. These annuities set limits on gains and losses. They are less risky and have a guaranteed minimum return.
Is an annuity right for me?
When planning for retirement, you want to make a plan that works for your situation and the people you love. The best pension plans are tailor-made, and an annuity can be a good choice. Contact one of our local agents to learn more about how an annuity can help you save for retirement and get an income you can count on year after year. It is worth finding out more about investing in an annuity from one of our local agents. They can dispel any confusion and explain how these investments can improve your retirement years.