Annuities
What are annuities?
A financial product sold by financial institutions that is designed to accept and grow funds from an individual and then, upon annuitization, pay out a stream of payments to the individual at a later point in time. Annuities are primarily used as a means of securing a steady cash flow for an individual during their retirement years.
How they work
Different types of annuities work differently. Which one may be suitable for you depends on your individual needs and goals. A financial professional can help you determine which annuity may be right for you.
Typical Annuities:
You give the insurance company money in one or more payments.
The insurance company places the money in its general account and then invests it on behalf of all annuity owners.
Later, the insurance company credits your annuity with interest under the terms of your contract, while offering protection from loss of principal.
Any interest growth in your annuity will be tax-deferred, and after a period of time specified by your contract, you may then receive the amount allowed by your contract in a lump sum, over a set period of time, or as income for the rest of your life.
Fixed Index Annuities:
You give the insurance company money in one or more payments.
The insurance company places the money in its general account and then invests it on behalf of all annuity owners.
Later, the insurance company may credit your annuity with interest based on positive changes in an external index of your choice, such as the S&P 500, while offering protection from loss of principal. Some fixed index annuities let you choose from a number of available index options, while others may offer limited choices. Because fixed index annuities are fixed insurance products, at no time is your contract’s value invested directly in the stock market. Interest credited may be limited or reduced by a variety of factors, such as caps, spreads, or participation rates.
Any interest growth in your annuity will be tax-deferred, and after a period of time specified by your contract, you may then receive the amount allowed by your contract in a lump sum, over a set period of time, or as income for the rest of your life.
Keep in mind that if you withdraw money earlier – or in a greater amount – than your contract allows, fees and penalties (such as surrender charges) may apply, including a 10% federal additional tax for withdrawals prior to age 59½. All distributions are also subject to ordinary income tax
Annuities are designed to meet long-term needs for retirement income. They provide guarantees against the loss of principal and credited interest, and the reassurance of a death benefit for beneficiaries.