Annuities

An annuity is a contract between an insurance company and you in which you make one lump sum payment or series of payments. These payments are guaranteed regular disbursements beginning either immediately or at some point in the future. Many of these contracts guarantee payment for the life of the policyholder and/or their spouse. Similar to a pension, annuities are commonly referred to as an individual private pension. The goal of annuities is to provide a steady stream of income during retirement and guarantee those payments for life.

Chances are you already have an annuity. If you receive Social Security, you already have an annuity that pays you for the rest of your life. If you have a pension, you have a fixed annuity that pays you for life. By taking an annuity as part of your financial plan you guarantee yourself a minimum amount of income in addition to your social security payment that you will receive even if you live until 120. No other financial product can guarantee income for you and your spouse’s entire lifetime.

A multi-year guaranteed annuity or MYGA is an insurance contract between you and an insurance company. You make one lump-sum deposit into an MYGA with a declared rate and term. A MYGA is a fixed deferred annuity which is a good tool for money you don’t need to spend right away. The interest the policy pays into the account is tax-deferred, meaning you will not pay the taxes on the interest until the money is taken. Multi-year guaranteed annuities are offered for terms lasting from 3 to 10+ years.

A fixed-indexed annuity is a type of annuity that grows at your choice of an annual, guaranteed minimum rate of return; or the return from a specified stock market index (S&P 500, DJIA, Russell 2000). A fixed-indexed annuity participates in stock market-like returns without the risk of loss. Typically, a fixed-indexed annuity participates with the gains of the stock market, but with a cap. For periods where the index fund shows a loss, the fixed indexed annuity reflects a breakeven year or no gain and no loss. Therefore, you can participate in stock market-like gains without the traditional risk of stock market losses.

An immediate annuity begins payouts within 12 months of the purchase date. A deferred annuity typically begins payouts several years later. A deferred annuity is like a retirement savings account while an immediate annuity is like a fixed benefit pension.