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Annuity Awareness Month
June is Annuity Awareness Month, so let’s explore the basic kinds of annuities and why you might consider purchasing one.
What is an annuity?
An annuity is a contract between an insurance company and an individual, the annuitant, allowing the person to contribute funds by paying a premium, and the insurer agrees to periodically pay the individual a specific amount of money for a designated time. Retirees are the most common investors in annuities. Some financial experts say the best age to buy an annuity is between 70 and 75.
What kind of annuities are available?
There are two main categories of annuities and several subcategories as well. The two overarching types include those that pay out to the buyer immediately and others featuring deferred payments. Immediate annuities involve the customer submitting a lump sum of money to the insurance company. The client begins receiving payments immediately. The amount of cash received reflects a fixed number or variable amount. Usually, individuals who select this type of annuity have come into a large sum of money, most likely through inheritance or retirement. Deferred annuities are for those who want their money to grow over their employment years to obtain a stream of income when they are older. The customer can also purchase a deferred annuity with a lump sum, a series of intermittent payments, or a combination of both. As a client, you should always be certain you understand the details and are comfortable with the terms before signing a contract.
What are variable, fixed, and indexed annuities?
Purchasing a variable annuity can allow you to see your money grow more, but there is risk involved in the decision. The money within a variable annuity is susceptible to stock market losses. A fixed annuity provides you, the client, with a specific guaranteed interest rate on your contributions to the annuity account. Indexed annuities may sometimes be called equity-indexed or fixed-indexed annuities. These types of annuities combine the safety features of fixed annuities and add an opportunity for your cash to increase depending on how the market performs. With an indexed annuity, you have a guaranteed minimum return and may receive payment from the interest rate based on a relevant market index, such as the S&P 500. On the contrary, the portfolio choices of the customer determine the payout for fixed and variable annuities.
If you found this post insightful, please read about the differences between annuities and IRAs.
Do you want to discuss annuities with a friendly licensed agent? If so, please contact Empower Brokerage at 888-446-9157.
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