What is an annuity?
An Annuity is basically a contract between you and your insurance company. You pay in one lump-sum or broken into monthly payments called a premium. The insurance company in return, promises to pay you regular income either right now or in the future. We use them as a type of savings for retirement income, called a retirement savings vehicle.
How does an annuity work?
They work by providing a steady flow of income, for those in retirement. Funds accumulate over time(accrue). There are a lot of options when looking to find out how an annuity works for anybody’s specific needs. It gets even more complicated when you bring in taxes. Funds accumulate on a tax-deferred basis. Kind of like a 401k, in which contributions can only be taken out with no penalty after 59 ½. And you will pay a tax on income you receive from an annuity at the regular income tax rates.
How many kinds of annuities are there?
So many, it all depends on your specific situation, there is the immediate annuity, or a deferred annuity (which pays now or at a time in the future). Then there are three main varieties. Fixed, variable, and indexed annuities.
Why is it important to make sure you are getting help from a financial professional you can trust?
It’s important to remember how annuities are being used. Like retirement income supplements. Most of the time tied to an employee pension plan, or another life insurance product, like long term care.
These types of annuities can help to avoid having to spend down your assets. It is something to think about in case you or your loved one end up needing longer time of care or in-home care.
There are a lot of different factors that can affect which annuity is going to work best for you. It is always good to do a very in depth and detailed retirement and financial strategy session. We do a free analysis to at least see what is going on with your assets and leave your checkbooks and wallets at home. This analysis is for free.