Annuities
Understand The Basics
Understanding Annuity Basics
What is an annuity? Could it be beneficial to you?
Many retirees and pre-retirees aren’t aware of how these products work, and the benefits that some of them come with. We can help you understand annuity basics. If you have any questions, give us a call. Not all annuity products are the same. However, they do have a few key things in common: all annuities are products issued by insurance companies, which allow the policyholder to receive income. The terms of that contract, and what type it is, differ from product to product. In our opinion, the best annuity product to use in your retirement strategy is a fixed indexed annuity.
Understanding Different Types of Annuities
As we said, not all annuity products work the same. There are three main types of annuities: these include fixed annuities, variable annuities, and fixed indexed annuities, or FIAs.
These types do have a variety within them, however, depending on the individual product. With a fixed annuity, the policyholder receives interest on their money at a fixed rate. This option is safe, but may offer disappointing returns, with no potential to increase your rate. With a variable annuity, meanwhile, you have the possibility of potential growth. However, this is done by investing your money in the stock market, placing it at risk. However, you may not be comfortable with this if you’re nearing retirement; you may want an option that offers guaranteed* safety. This brings us to fixed indexed annuities.
Fixed Indexed Annuities
An FIA is very different from a viable or fixed annuity. An FIA is, in a sense, the “best of both worlds.” Similar to a fixed annuity, it provides guaranteed* protection of principal. However, like a variable annuity, it allows for potentially higher returns over time. Protection, a reasonable rate of return,** and several other benefits, all from one product. As its name implies, a fixed indexed annuity gains interest based on the performance of an index or multiple indexes. However, this is not the same thing as having your money invested in stocks.
With an FIA, you contribute a certain amount of money, which the issuing insurance company sets aside in a reserve where it will be kept safe.
Then, the accumulation stage begins. Your money grows, based on the performance of an index or indexes, while still being kept safe. And then when this stage ends, the distribution stage begins. During this time, you can receive income from your FIA. Furthermore, an FIA allows for tax deferral. And, if you select an income rider, it may grow at a rate that compensates for inflation. Learn more about all of these benefits by reaching out to us. We can help you better understand annuity basics at a meeting or at one of our no-cost educational seminars.