{"id":19384,"date":"2021-12-01T09:07:15","date_gmt":"2021-12-01T14:07:15","guid":{"rendered":"https:\/\/lifehappens.org\/?page_id=19384"},"modified":"2024-11-07T11:56:49","modified_gmt":"2024-11-07T16:56:49","slug":"annuity-101","status":"publish","type":"page","link":"https:\/\/lifehappens.org\/annuity-101\/","title":{"rendered":"Annuity 101"},"content":{"rendered":"

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Annuity 101<\/h1>\n

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People are living longer and healthier lives, with retirement looking less like a slowdown than a new chapter in life. A change in how retirement looks and how long it lasts also means exploring how you can make your savings and income from varied sources last as long as you do. That\u2019s where annuities come in. They can help you create a guaranteed income stream you won\u2019t outlive.<\/p>\n

If you feel you don\u2019t really understand annuities, you\u2019re not alone. In fact, 64% of people say a reason for not owning one is simply because they don\u2019t understand them.\u00b2 If this is you, these Q&As can help you get a handle on the basics, before you reach out to discuss the topic with an insurance or financial professional.<\/p>\n

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Retirement should be carefree \u2014 but as it approaches, many people find the thought of maintaining and possibly running out of money over time stressful. Enter annuities. These financial instruments provide you with a guaranteed income stream, either for a fixed length of time or for the rest of your life, depending on the annuity you choose.<\/p>\n

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Learn more about how annuities can help you in retirement \u2192<\/a><\/p>\n

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There are different types of annuities that can provide the guaranteed income you need, when you need it. Choosing the right type typically depends on your financial situation, when you need payments to start and your risk tolerance.<\/p>\n

Generally, annuities fall into the following types:<\/p>\n

Fixed vs. variable. <\/strong>A fixed annuity <\/em>delivers a fixed rate of return (the percentage growth each year), while a variable annuity <\/em>lets you invest your annuity funds for a possibly higher\u2014or lower\u2014rate of return.<\/p>\n

Immediate vs. deferred annuities. <\/strong>A single premium immediate annuity<\/em> (known as a SPIA) can start to pay income right away, while a deferred annuity <\/em>allows you to guarantee your income stream at a specific time in the future.<\/p>\n

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Learn more \u2192<\/a><\/p>\n

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Guaranteed income for life.<\/strong> No other financial instrument can promise this.<\/p>\n

Tax advantages.<\/strong> Annuities can offer you tax-advantaged growth as well as favorable taxation when your payments begin.<\/p>\n

Continued payments to a surviving spouse and additional loved ones<\/strong> with joint and survivorship options.<\/u><\/p>\n

Freedom from probate <\/strong>(a court-supervised proceeding).<\/strong> The proceeds from your annuity can go directly to family beneficiaries without having to set up a trust.<\/p>\n

Versatility.<\/strong> Based on your goals, some annuities can be liquidated or exchanged for other products.<\/p>\n

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Learn more about these benefits \u2192<\/a><\/p>\n

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Annuities offer options that allow you to customize them to your long-term goals and maximize their value. However, life is full of curve balls.<\/p>\n

Contract flexibility.<\/strong> Annuity features and other options\u2014often known as riders\u2014allow you to change the terms of the annuity, access (liquidate) a portion of the cash value, or annuitize it early in certain circumstances. Deferred annuities in particular can often allow access to cash value during the accumulation phase.<\/p>\n

It\u2019s still your call.<\/strong> Even without a rider, you may be able to change the terms of your annuity contract, sell or liquidate it. However, there may be fees involved. For instance, there are typically fees called surrender charges for liquidating an annuity before age 59-1\/2.<\/p>\n

Speak with a financial professional<\/a> to find out more about your options and if an annuity is right for you.<\/p>\n

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It\u2019s good to understand that an annuity transfers the risk of you outliving your assets to an insurance company. In turn, they guarantee a stable income for a specific length of time, or for as long as you live. Depending on the type of annuity you purchase, there may be fees involved in providing this guarantee.<\/p>\n

How costs are calculated: <\/strong>An insurance company prices its guarantee based upon your life expectancy at the time of application, and the payout period you desire. Generally, the more risk you transfer to the insurance company, the higher the fees.<\/p>\n

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These days, annuities have many options, which requires planning and a long-term commitment to make the most of the benefits. A financial professional can help you understand all the factors to take into consideration. Here are a few points to keep in mind:<\/p>\n

Limited access to funds.<\/strong> There may be limitations on your access to the cash value of the annuity. Fees and penalties may apply for early annuitization<\/em>, or liquidation.<\/p>\n

Taxation.<\/strong> The taxable portion of an annuity payment is generally taxed as income, not capital gains.<\/p>\n

Inflation.<\/strong> Ask a financial professional <\/a>about options many annuities offer to ensure your payments keep pace with rising costs.<\/p>\n

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A time-tested, regulated financial tool. <\/strong>Annuities are one of the oldest financial tools in the world. Their use dates to Roman times, and they\u2019ve been sold in the U.S. since the early 1800s. Today, annuities are regulated by states and can only be issued by life insurance companies. Due to their market exposure, variable annuities <\/em>specifically are also regulated by the Securities and Exchange Commission and by FINRA, the financial industry regulatory authority.<\/p>\n

Check financial strength ratings. <\/strong>Annuities are not<\/em> FDIC-insured. That means guarantees are based on the claims-paying ability of the company. Consumers can check the financial strength of a life insurance and annuity company with ratings agencies such as Standard and Poor\u2019s (S&P), AM Best, Fitch, Moody\u2019s and Weiss. Comdex also ranks companies by averaging all the major life insurance ratings to develop a composite score.<\/p>\n

Additional industry safety nets. <\/strong>In addition to state regulatory oversight, every state has a nonprofit guaranty association<\/em> funded by annuity companies as a financial backstop. As a result of these industry safeguards, annuity holder losses have historically been very low, even if an annuity company defaults.<\/p>\n

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One of the best things about an annuity is that you never have to lose what you put into it.<\/p>\n

Continuing payments. <\/strong>Payments cease upon death, but most annuities have options to continue payments to the surviving spouse or another loved one.<\/p>\n

Distributions. <\/strong>If your annuity has remaining cash value, it can be distributed to your beneficiaries\u2014the people you specify to receive your assets when you pass away. Beneficiaries receive payment via a lump sum or installments. Distribution terms are private with no need for probate (a court proceeding) if beneficiaries are family members. This makes annuities a useful tool for transferring wealth to heirs.<\/p>\n

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Annuities are income-guarantee contracts offered by life insurance companies that are customized just for you. Many annuity applications can be submitted electronically, but a consultation with a financial professional is required to help you determine which features are right for you, including:<\/p>\n