Annuities

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Ensure a guaranteed income
for your retirement years

Maybe you have maxed out your retirement contributions and want to save even more. Maybe you're already in retirement but have worries you might outlive your savings. Whatever your situation, an annuity can provide a guaranteed stream of income – starting immediately or on a future date.
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What is an annuity?

Annuities are insurance products that provide a regular income either immediately or in the future. They are used primarily by retirees or those planning for retirement. When you purchase these insurance contracts, you make an investment and receive in return a lump sum or series of payments over time.

In addition to regular payments for a specific amount of time, they can offer death benefits and tax-deferred growth.

 
  • Help manage your income during retirement
  • If you die before receiving payments, your beneficiary receives payment
  • You pay no taxes until you withdraw the funds
How do annuites work

How do annuities work?

Annuities are long-term investments that help protect you from outliving your income. You can invest a lump sum or over a period of time and then start receiving payments. You can select a contract with a fixed, variable, or indexed rate of return.

The period of time when an annuity is being funded and before payouts begin is referred to as the accumulation phase. The annuitization phase is when payments start.

What types of annuities are there?

There are two main structures to provide different types of benefits. Depending on your current situation and your financial goals, you may want your contract to pay now or to pay later.

For example, a 57-year-old woman may have maxed out her 401(k) contributions and be looking for an additional vehicle to save for retirement. Or, an 82-year-old man may realize his retirement savings could run out before the end of his life. There are products available for each of them.

Immediate annuity: These contracts are funded with a lump sum single payment. They provide guaranteed monthly payouts that can supplement your retirement savings. They are not affected by market volatility.

Deferred annuity: These contracts offer tax-deferred premium growth and guaranteed lifetime income beginning on the date you specify. This option can provide more income later because of the longer time available for the funds to accumulate.

The option you choose depends on your specific financial goals and situation. Our professional agents can help you get started.

 
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Fixed annuity

Fixed annuities

With a fixed annuity, your investment grows based on a guaranteed rate of return (minimum rate of interest). You can choose an immediate or deferred contract, depending on your financial goals. These annuities are the simplest types – usually with the lowest fees.
 
  • You are guaranteed a minimum interest rate
  • You cannot lose your initial investment
  • If you choose a life annuity, you cannot outlive your payments
  • There are no complicated formulas determining your payment amounts
  • They are not influenced by market volatility

By choosing these predictable fixed contracts, you may miss out on the potential of greater interest rates. Because the growth is fixed, the payouts may not keep up with inflation.

What is a guaranteed lifetime
withdrawal benefit (GLWB)?

A deferred fixed annuity with this benefit guarantees a lifetime income beginning whenever you choose. Usually, with this type of contract, the future income amount increases on each contract anniversary. That means you will know how much income you will receive each year.
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Index annuity

Indexed annuities

Indexed annuities are a hybrid of fixed and variable annuities. Their value is based on the performance of a stock market index like the S&P 500. These contracts have a guaranteed minimum return. They were originally created to compete with certificates of deposits (Source).
 
  • When index stocks increase in value, your contract increases in value
  • The added increase can offset future inflation
  • If the stock market underperforms, your money is still protected
  • These contracts can usually provide better rates than certificates of deposit

Indexed annuities do cap investment gains and usually involve higher fees. They are typically more costly and complex than other options.
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Are indexed annuities safe?

The most predictable and reliable option would be a fixed contract. However, indexed annuities are more reliable than variable ones. The guaranteed minimum return is specified when you purchase the contract. It's usually a percentage of the principal, plus interest.

How does an annuity help me
save for retirement?

These insurance contracts can be beneficial to those actively saving for retirement, nearing retirement,
or living in retirement.

Saving for retirement: There are no contribution limits on deferred annuities, so you can use them for additional savings after maxing out your 401(k) contributions.

Approaching retirement: Some deferred annuities can provide a lifetime income that begins on the date you specify – whether retirement is around the corner or a decade away.

Living in retirement: You do not have to worry about outliving your retirement savings. You can choose an immediate annuity and set up a guaranteed income for life.
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Consider the fees

Depending on the complexity of the type of contract you choose, there may be several fees or charges involved. It's important to understand every aspect before purchasing an annuity. Some charges to consider before purchasing can include:
 
  • Administrative fees
  • Underlying fund expenses
  • Fees for special features, like guaranteed minimum income benefit
  • Early withdrawal penalties
  • Surrender charges
  • Tax rates
Save money while meeting regulations

How are annuities taxed?


They are tax-deferred, but that does not mean you avoid taxes altogether. You pay taxes as you receive payments, and they are taxed as ordinary income rather than capital gains.

You can plan ahead for taxes depending on the type of contract you choose. A qualified annuity is funded by untaxed money and is subject to income taxes. A non-qualified annuity is funded by after-tax funds and only requires taxes on earnings.
What happens to an annuity when you die


What happens to an
annuity when you die?

You can specify if you want your contract to include a death benefit to be paid to a spouse or other beneficiary. You can provide a stream of income for a spouse or leave a legacy for your heirs.


 
Retirement home

When can you cash out
an annuity?

You should consider when you want to access your money at the time of your purchase. If you choose an immediate annuity, it skips the accumulation phase and goes straight to the annuitization phase when payments start. This provides your income starting immediately.

If you choose a deferred annuity, there is often an IRS penalty for withdrawals before age 59½.

Should I buy an annuity?

Not everyone needs an annuity – it depends on your individual retirement plan. However, if you are concerned about outliving your savings, they can be a reliable source of retirement income.
Our agents are ready to work with you to meet your specific financial goals.
Contact our office to get started.
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