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Understanding Annuities

October 1, 2021

Do you have questions about an existing annuity?

Perhaps your circumstances have changed and you’re not sure this product continues to be a good fit for you. Don’t hesitate to request a free assessment – we are here to help you understand your current policies and assist you in making a change if necessary or possible.

The Basics

Annuities are customizable and can be personalized with provisions, riders, costs, and payouts to meet specific purposes.

Immediate Annuity – this policy is meant to immediately distribute funds for a specified amount of time. A lump sum premium is initially deposited then drawn upon as a steady stream of income over time. Part of the value of these accounts is that they are sheltered from market fluctuations, shifting the risk to the insurance company, protecting the policyholder and their income.

Fixed Annuity – like the Immediate annuity, this policy also requires an up front premium (in some cases only a portion) and guarantees a fixed interest rate for a specified amount of time. Similar to a CD, in that it offers a guaranteed rate of return, the fixed annuity may offer deferment of taxes. Again, these vehicles vary greatly depending on the issuing company and the initial terms set forth, but they are designed for long-term security and preservation of principal – everything about them is geared toward protecting the initial premium – and from a strategy standpoint, the guaranteed interest rate is still adding to your initial investment.

Variable Annuities – somewhat of a hybrid between the stock market and the annuity market, most negativity toward annuities in general seems to come from the design within these products as the potentially negative aspects have overshadowed the quite useful qualities of the fixed option. High fees and market risk are common reasons these are avoided, but for some, this option is still a good fit when selecting specific riders that assists in reaching long term goals.

Fixed Indexed Annuity – again, somewhat of a hybrid, this time between the fixed and the variable. There are guarantees in place against losing money (depending on the company and the product, but it won’t sink below the set level), but you’re somewhat limited on how much growth you can expect. The details of this particular product can be somewhat complicated, and we can provide you with a deeper description if requested, but the basic premise is that it follows a specific index (think S&P 500 and the like) – which is dependent upon the strategy chosen. The fixed and variable also offer strategies to choose from, again, adding a layer of complexity that we are here to help you fully understand.

As Unique as You

Annuities are an extremely customizable tool offering a vast array of options. As with any investment, it’s about having a trusted professional explain exactly what each of these products provide while being candid about the risks and potential rewards, and, most importantly, if it is right for your unique situation.

We are here to help. Please don’t hesitate to reach out if you are interested in learning more about annuities or any retirement vehicles. Our Retirement 360 Game Plan can give you a complete view of your retirement picture.