Understanding Annuities
Annuities are one of the only safe money products that can guarantee practical retirement solutions.
Key Takeaways
An annuity is a contract between you and an insurance company purchased in a lump sum or through a series of premium payments.
The two most common categories of annuities are: fixed and variable.
So how does an annuity work?
An annuity is a contract between you and an insurance company purchased in a lump sum or through a series of premium payments. Much like how you ensure other valuable assets in your life, like your car or your home. And annuity ensures that your retirement money is safe from volatility and that you will have a reliable income source when you need it. There are a variety of annuities available that you can discuss with your financial professional.
Fixed and Variable
The two most common categories of annuities are: fixed and variable annuities. These categories have different methods of earning interest on the contract value.
Variable annuities are returns based on the performance of the investment portfolios, a return is not guaranteed and the contract value may go up or down.
Fixed annuities guarantee an interest that will never be less than zero even if the market goes down.
Fixed and Fixed Index Annuities
There are two common designs for these type of annuities: fixed and fixed index annuities.
A fixed annuity offers guaranteed growth at a fixed interest rate established when you purchase the annuity or declared annually.
A fixed index annuity offers additional interest growth opportunities determined by a formula that is based on the performance of an external index.
Both fixed and fixed index annuities offer a guaranteed minimum interest rate and tax deferred growth. That means your annual return will never go below zero due to index volatility and your money grows tax deferred up to the day you decide to take an income.
When you are ready to take an income these annuities offer a variety of income payment options such as a lump sum, or a series of payments over time.
A Rider to Your Annuity
For additional lifetime income options, you can elect to add a rider to your annuity for a small fee. This benefit helps generate a reliable income source that cannot be outlived with a variety of payout options.1
https://smartasset.com/retirement/annuity-rider#:~:text=An%20annuity%20rider%20is%20an,contract%20to%20do%20for%20you.