Annuities are long-term contractual financial products, issued and guaranteed by an insurance company, and purchased by individuals for the purpose of transferring a specific risk, such as the risk of outliving one’s savings. In this post, we’ll discuss a few common types of annuities that may help you save for retirement on a tax-deferred basis, generate guaranteed retirement income, or offer a complimentary savings vehicle to your 401(k) and/or IRA.
Immediate annuities are typically purchased with a single lump sum and distribution payments begin right away. The insurance company promises to make these regular payments (guaranteed by their claims-paying ability) for a chosen length of time – most commonly for the remainder of the annuitant’s life. Immediate annuities may be fixed or variable.
Deferred annuities begin in the accumulation phase with the annuitant making premium payments into the annuity. During the accumulation phase, earnings typically accumulate on a tax-deferred basis, and the annuitant can decide when to start taking distributions. Deferred annuities may also be fixed or variable.
Fixed Annuities offer a fixed rate of return for a specified time period without any risk to principal. A fixed annuity can be annuitized to provide an income payment for a specified term or for life.
Variable annuities do not guarantee a return, and instead, offer annuitants the ability to invest premiums in professionally managed subaccounts consisting of stocks, bonds, and money market funds. They offer the possibility of higher returns, greater capital accumulation, and a larger income stream, which also exposes them to market risk and potential losses. The only advantage over a regular investment is that the principal is guaranteed.
This post is a brief overview of common annuities. To learn more about the features and costs of annuities, talk to an Amuni representative today.
Annuities are long-term products and may be subject to contract limitations, fees and charges including M&E expense, sales and surrender charges, administrative fees, charges for optional benefits, underlying investment expenses, and early withdrawal penalties and taxes. Variable annuities are sold by prospectus only.
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