There's no time like the present when it comes to investing. Annuities are great for people of all ages and the earlier you make your investment the better the income potential. See what annuities do can for you.
Annuities can be an important part of a solid retirement plan. That is because they can protect a portion of your retirement savings from market loss and help make sure some of your income lasts as long as you do. Given today's retirement reality, most new or soon-to-be-retired prefer protection over growth.
In a recent study of baby boomers, 81% of consumers say one of the most important financial goals is the ability to support the stable predictable standard of living throughout retirement. Only annuities can offer the combination of principal protection and income for life.
Let’s start at the beginning
What exactly is an Annuity?
An Annuity is an agreement between you and the insurance company. You give money to an insurance company, and in return, they offer you a guarantee.
With some annuities that means guaranteed interest or guaranteed income on retirement for a set period or if you choose for the rest of your life - kind of like social security or a pension that you fund yourself. Think of it as part of your plan for guaranteed lifetime income.
Annuities can do other things as well; they can give your money an opportunity to grow tax-deferred. Some annuities can help protect your money from market risk, and annuities can also be customized with extra features known as “Riders” which you can add for an additional cost, sort of like adding features to a new car.
Some common Riders include guaranteed lifetime income and the potential for increasing revenue in retirement to help protect against inflation.
Keep in mind all annuities involve insurance-related fees and charges, and because they are long-term contracts designed for retirement, there can be fees or penalties for taking money out early, including surrender charges. If you are under the age of 59 ½, there is a 10% federal additional tax, which means you may lose some of your principal in some instances.
Different types of annuities are designed to do different things. If you want protection from market loss and the predictability of knowing exactly how much interest and income you will receive, a fixed annuity may appeal to you. A fixed annuity earns a steady or fixed interest rate for a specific period and also protects your money from the drama of the stock market.
Fixed Index Annuities
If you want the protection of the fixed annuities with the potential for better long-term growth a fixed index annuity might interest you. A fixed Index annuity gives you the same protection as traditional fixed annuities along with the potential for higher interest (based on a positive change in the external index like the S&P 500) however you are not participating in the market and there are limits of how much interest you may earn. In other words, fixed index annuities offer the protection of the fixed annuities with more accumulation potential.
Annuities generally have two phases
First, you are building out your retirement savings which can grow tax-deferred to credited interest or investment returns, this is known as the accumulation phase. Then you start receiving money from your annuities helping you to live your retirement the way you wanted, this is known as the income phase, and of course, you will owe income tax of any taxable portion.
To summarize an annuity is an insurance product that can protect a portion of your retirement savings and provide you with a steady income in retirement for the rest of your life as part of your plan for guaranteed lifetime income.
To see if an Annuity is right for you, talk with one of our financial professionals at LYFE Advisors.