Annuities are one way to generate a lifetime income, save for retirement, and leave a financial legacy. However, there are three main types of annuities—fixed, variable, and indexed—so selecting the right one for you can get complicated.
A fixed annuity promises that you'll earn a stated interest rate on your money, resulting in the same payout year after year. This type of investment is essentially risk-free. The insurance company assumes all the risks and guarantees that you'll make the stated interest rate. Fixed annuities aren't tied to the stock market in any way.
With a variable annuity, you can make either a lump-sum payment or a series of payments. The company agrees to make consistent payments to you immediately or at a specified future date. Variable annuities combine the elements of mutual funds, life insurance, and tax-deferred retirement savings plans. When you invest in a variable annuity, you can select from various mutual funds.
With an indexed annuity, you can take a one-time payment or a series of payments. The company will credit you the return calculated by the changes on a particular index, such as the S&P 500. It'll also guarantee you a minimum return, though these minimums can vary from one company to the next.
Along with each of these main types, there are differences in accumulation, payout, and costs so before you talk with your financial professional, ask yourself:
What'll I use this annuity for?
- If you're retired or nearing retirement and need a consistent income, a fixed annuity might be the right choice
- If you're building up for retirement, you might consider a variable annuity or an indexed annuity
- If you're going to leave your annuity to your children or grandchildren, consider a variable annuity with a death benefit
Finding the right annuity can be a daunting task, given all the variables, so don't do it alone. Call us, your trusted financial professional, and together let's narrow the field down to the investment solution that's right for you!
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This document is for educational purposes only and should not be construed as legal or tax advice. One should consult a legal or tax professional regarding their own personal situation. Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products offered by an insurance company. They do not refer in any way to securities or investment advisory products Insurance policy applications are vetted through an underwriting process set forth by the issuing insurance company. Some applications may not be accepted based upon adverse underwriting results. Death benefit payouts are based upon the claims paying ability of the issuing insurance company. The firm providing this document is not affiliated with the Social Security Administration or any other government entity.
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[1] https://www.investopedia.com/articles/retirement/09/choosing-annuity.asp