Summary
An annuity is an insurance contract that gives the holder or annuitant (and their spouse) guaranteed income for life. It pays out invested funds, often earned interest and sometimes growth, in a fixed income stream.
An annuity has two phases: the accumulation phase and the payout phase. Variable and fixed annuities are designed for long-term holding. Indexed annuITIES offer a minimum guaranteed interest rate.
The more features an annuity has, the more expensive it is. The more features, the higher the cost of an annuitant. An annuitants can choose a fixed, variable, immediate, or additional features.
An annuity offers an unlimited tax-deferral opportunity. Commissions are paid based on the dollar amount put into an annuity contract. A bonus is that there are no withdrawal requirements; you can hold your annuity as long as you like.
What are the risks of buying an annuity? An annuity is not an investment, and annuitants aren’t necessarily looking for growth.
Surrender risk is paying surrender fees on money prematurely withdrawn from an annuity. Credit risk is the danger the annuity issuer will go insolvent.
An annuity is an efficient way to grow retirement assets. It can sometimes be a solution if other sources of income are insufficient. Many annuity holders use their annuity for death benefits.
The full faith and credit of the insurance company back annuities. Every state covers a minimum of $250,000 in the present value of annuity benefits.
Annuities offer a guaranteed interest rate and guarantee that you and your spouse receive guaranteed income for life. Annuities are the only product guaranteeing an income stream you can’t outlive.
An annuity can be a substitute for a pension. Most fixed annuities have no maintenance or annual fees. limit the number of riders you purchase.
Certain annuities can help protect your future income from market volatility. Some can help protection you against inflation. Most insurance companies offer prospective annuitants a period immediately after purchasing a contract when you can cancel the contract and have your money refunded.
