What is an Annuity?
Explore future growth and security with an annuity.
An annuity is a type of savings plan used by individuals looking for long term growth and protection of assets that will likely be needed within retirement.
Millions of people utilize annuities every year to ensure that they have a guaranteed retirement nest egg, as annuities provide a number of specific advantages over other traditional investment vehicles. An annuity can provide tax deferred benefits, long term growth, guaranteed interest rates, probate protection, trust advantages and lifetime income, and still guarantee the security of principal and earnings from your savings.
Like 401k and IRAs, the annuity takes advantage of special legislation passed by Congress that encourages individuals to save more money for their retirement. The advantage is that most annuities offer tax deferred accumulation, meaning that your retirement savings can grow at a faster rate because taxes are not paid yearly like they are with a CD. Any taxes paid in the future are calculated on the distributions you take, giving you better control for reducing taxation, as most individuals can be in a lower tax bracket at retirement.
Annuities can have special considerations and restrictions in exchange for their guarantee of long term financial growth and security. This can include surrender charges or fees for accessing the investment too early, as well as possible tax liabilities like the 401k or IRA for touching the money prior to 59 ½. It is always important to ensure the annuity you select matches the long term objectives and retirement plan you are working to achieve.
For many individuals though, the security and minimum growth provisions make the annuity an ideal tool for planning ahead. An annuity can remove the stress of managing assets over long term periods, while providing guarantees that when you need your money the most - it will be there.
Where Do Annuities Come From
Annuity products are provided by insurance companies, who can be evaluated by reputation, strength, reserves, historical performance, interest rate renewals, and consumer satisfaction. The legislation governing insurance companies is very strict, as federal law requires them to hold reserves that at all times equal the withdrawal value of your annuity policy. In addition, state law also requires surplus capital be available to increase your protection.
Each and every annuity has different characteristics, depending on your objective to create retirement income, maximize tax deferred accumulation benefits, or protect your assets in a variety of ways. The most popular annuities used for these objectives include the fixed annuity, immediate annuity and equity indexed annuity, which all offer guaranteed interest with the security of knowing you will never lose your principal or future earnings.
The exception sometimes used by more aggressive investors is the variable annuity, a specialized securities product that is directly linked to the stock market. For individuals that prefer the growth potential of stocks, bonds and mutual funds, the variable can be a viable planning option, although it does not provide the same level of security for your principal and earnings as the other annuities referenced. Understanding your risk tolerance and personal threshold for potential loss is important before making any final decision about variables.
Popular Annuity Products To Consider
Tax Deferred Annuity
The tax deferred annuity is the general name for many different types of annuities that provide long term tax deferred advantages for accumulation purposes. For more information visit our tax deferred annuity section.
Fixed Annuity
The fixed annuity normally offers a guaranteed interest rate for a set period of time, providing secure performance competitive to traditional CDs and savings. For more information visit our fixed annuity section.
Immediate Annuity
The immediate annuity was designed to convert monetary assets into a stream of lifetime or set period payments to ensure individuals do not outlive their savings. For more information visit our immediate annuity section.
Equity Indexed Annuity
The equity indexed annuity was designed to give investors access to part of the upside of the stock market, while providing the safety and protection of fixed annuities. For more information visit our equity indexed annuity section.
Tax Sheltered Annuity
The tax sheltered annuity is technically the name for tax deferred annuities used by schools and non-profits, although individuals call many annuities by this name. For more information visit our tax sheltered annuity section.
CD Type Annuity
The CD Type annuity is an alternative name given to the fixed annuity by some investors, who look at the fixed rate and security aspects of an annuity as similar to a CD. For more information visit our CD Type annuity section.
Variable Annuity
The variable annuity is linked to the stock market and provides investors with a higher rate of potential return, although your principal and earnings can be at risk. For more information visit our variable annuity section.
Charitable Gift Annuity
The charitable gift annuity works similar to an immediate annuity, in that you can donate assets to your favorite charity, in return for a lifetime or set number of payments. For more information visit our charitable gift annuity section.
Medicaid Annuity
The Medicaid annuity refers to the ability to utilize immediate annuities in some states to protect personal assets against the high costs of long term care and nursing homes. For more information visit our medicaid annuity section.
Looking for more information? Contact us today with any requirements you may have concerning annuities or financial planning. Our annuity specialists can provide objective and independent planning assistance within your local area. For a helpful guide to ensure you get the best planning advice click here. For a quick introduction on annuities and their safety factors click here.
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