If you’re here, you likely know that an annuity is a relatively low-risk insurance product that pays you money, either for the rest of your life or for a set number of years. They are a popular investment option for those who prefer to have a steady flow of future income, especially as part of their retirement plans.
Here’s a look at the 3 types of annuities which are available through AccuQuote:
Immediate Annuity
If you’re looking for payments that begin right away and continue for the rest of your life or for a specified period of time (sometimes called a Single Premium Immediate Annuity or SPIA) might be right for you. This type of annuity is purchased with a single, lump-sum amount. In return for your one-time premium, the insurance company promises to make regular payments to you (or another person you specify) for a chosen length of time or for the rest of your life.
Why consider an Immediate Annuity?
- Secure — Stable and guaranteed income. If you’re at all worried about outliving your savings, this may be a great option for you.
- Simple & Safe — With an immediate annuity, you do not need to watch markets or track interest rates and dividends. Just collect your regular payments.
- Higher Returns — Interest rates used by insurance companies to calculate immediate annuity income may be higher than CD or Treasury rates.
- Preferred Tax Treatment — An immediate annuity may be a good strategy to help defer taxes until later in your retirement when you may be in a lower tax bracket. (Other types of annuities “front load” taxes)
- No Sales or Administrative Charges — Immediate annuities generally do not have annual account management or maintenance charges. In other words, 100% of your premium goes toward your monthly income and finds its way back to you!
Fixed Deferred Annuity
A fixed deferred annuity (sometimes called a Single Premium Deferred Annuity or SPDA) helps you earn interest safely and allows you to postpone the payment of income taxes on your earnings until you begin taking payments.
Fixed differed annuities may have higher interest rates than competing investments, such as CDs.
A fixed annuity isn’t subject to stock market fluctuations and can be utilized as a savings vehicle. They are often compared to CD’s because they allow your money to grow safely with low risk and a guaranteed rate of interest. And even historically, they’ve often exceeded the average rate available on bank CD’s. And while annuities aren’t backed by FDIC insurance like most bank accounts, they ARE backed by the full faith and credit of some of the largest and most financially stable insurance companies in the world. So, YES, they are SAFE!
What’s more, the interest you earn each year on your annuity is TAX-DEFERRED, which means that, unlike CDs, money market and savings accounts, you don’t pay tax on the interest you earn…until you withdraw the money.
And, one of the best features of an annuity is that you have the option, at ANY time, to elect a LIFETIME monthly income that you CANNOT outlive. No bank account can do that!
Why consider a Fixed Deferred Annuity?
- Guaranteed Principal –You can’t lose your money unless the insurance company fails. In the unlikely event this occurs, there is regulatory protection for annuity holders. Your money is safe in a Fixed Deferred Annuity, which can reduce the overall risk of your investment portfolio.
- Guaranteed Minimum Interest Rate – Your money NEVER earns less than the guaranteed minimum rate.
- Annual Withdrawals – Most contracts let you withdraw up to 10 percent of the value of the annuity every year with no penalty (if you’re younger than age 59-1/2, however, you may owe an IRS penalty).
- Death Benefits – If you die while owning the annuity, your money (including the interest you’ve earned up to your death) goes to your beneficiaries
- Income Option – You can convert the value of a fixed annuity to a guaranteed income stream for a specific number of years or for as long as you (or you and your spouse) are alive
- Preferred Tax Treatment – You can delay paying taxes on the interest you earn until you begin making withdrawals.
- Invest as Much as You Want – There are no government-set upper limit on contributions, unlike a 401(k) or IRA. Insurance companies may set their own limits on minimum and maximum contributions.
How about an example?
Let’s imagine that you’ve purchased a 20-year fixed deferred annuity for $100,000. Let’s say the agreement offers 3% interest over the period of the annuity. It is set to begin giving you monthly payments on January 1, 2016. You would receive $554.60/month until the end of the 20-year term on December 31, 2035.
Indexed Annuity
An indexed annuity earns interest or provides benefits that are linked to an external reference. The S&P 500 is a commonly used index. The value of any index varies from day to day and is not predictable.
When you buy an indexed annuity, you own an insurance contract. You are not buying shares of any stock.
An indexed annuity is a fixed annuity, but it’s different from other fixed annuities because of the way it credits interest to your annuity’s value. Some fixed annuities only credit interest calculated at a rate set in the contract. Other fixed annuities also credit interest at rates set from time to time by the insurance company. Indexed annuities credit interest using a formula based on changes in the index it’s linked to. How much interest you get and when you get it depends on the features of your particular annuity.
Your indexed annuity, like other fixed annuities, also promises to pay a minimum interest rate, even if the index-linked interest rate performs lower. The value of your annuity also never drops below a guaranteed minimum.
To learn more about this amazing financial product and talk with an experienced professional about which annuity is best for you, call 800-442-9899.
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