Investing
Annuities
Designed to Help Protect Your
Money
An annuity is a financial product designed to
provide a steady income stream, typically used for retirement
planning. It is a contract between an individual and an insurance
company, where the individual makes a lump-sum payment or a series
of payments, and in return, receives periodic disbursements starting
either immediately or at some point in the future.
Annuities are insurance products that provide a
steady stream of income in retirement, typically for life. They are
purchased with a lump sum or series of payments and can offer
guaranteed income regardless of market fluctuations.
Types of Annuities
There are several types of annuities, each
tailored to meet specific financial goals and needs:
Fixed Annuities
Fixed annuities offer guaranteed payouts at
regular intervals, providing a stable and predictable source of
income. The interest rate is fixed and does not fluctuate with
market conditions, making it a low-risk option for conservative
investors.
Variable Annuities
Variable annuities allow individuals to invest
in a portfolio of securities such as mutual funds/stock markets. The
payout amounts vary based on the performance of the underlying
investments, offering potential for higher returns but also carrying
greater risk.
Indexed Annuities
These are technically Variable Annuities, and
participate in Stock Market gains, but not the losses, thus
protecting the principal from loss.
Immediate Annuities
Immediate annuities begin payout almost
immediately after a lump-sum payment is made. They are ideal for
individuals seeking to convert a large sum of money into a reliable
income stream quickly.
Deferred Annuities
Deferred annuities accumulate money over time
and begin payouts at a future date, which can be beneficial for
long-term retirement planning. During the accumulation phase, the
invested funds grow tax-deferred.
Benefits of Annuities
Annuities offer several advantages that make
them an attractive choice for retirement planning:
Income Stability: Annuities provide a
reliable income stream, helping to ensure financial security during
retirement.
Tax Deferral: Earnings on annuities grow
tax-deferred until withdrawals are made, allowing the investment to
compound more efficiently.
Customization: Annuities can be tailored
to meet individual needs, with options for guaranteed lifetime
income or variable payouts based on investment performance.
Inflation Protection: Certain annuities
offer cost-of-living adjustments to help maintain purchasing power
in the face of inflation.
Annuity Goals
Different annuities are available that can
server individual goals.
Growth: Growing the value of the
investment principal
Income: Having lifetime income
Hybrid: Some growth and some income
Considerations When Choosing an Annuity
While annuities can be beneficial, it is
important to consider the following factors when making a decision:
Fees and Charges: Annuities may come
with various fees, including administrative fees, mortality and
expense risk charges, and surrender charges for early withdrawals.
Financial Strength of the Insurer: The
reliability of annuity payouts depends on the financial stability of
the insurance company issuing the contract.
Liquidity: Annuities are generally less
liquid than other investments, making it difficult to access funds
without incurring penalties.
Inflation Risk: Fixed annuities may not
keep up with inflation, potentially eroding purchasing power over
time.
Page Last Updated: 20 March 2025