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Annuity – Vero Beach, FL

What is an Annuity?

Today with climbing life expectancies, our retirements are becoming longer, and we have more active lives than previous generations. But as our retirement horizons expand, so too do our financial needs. Annuities are investment products that consist of a contract between you and an insurance company; annuities are technically a type of life insurance. At their most basic, annuities are intended to provide you with an income stream for your retirement years. However, annuities can go way beyond these basics with their many options.   These options include attractive guaranteed interest rates for accumulation, death benefit enhancements for estates, and even long-term care protection options.  Annuities are highly customizable; they can offer tax advantages, payment periods tailored to you and your spouse’s needs, protection against losing your initial investment, and options to transfer money directly to your beneficiaries, allowing them to avoid probate.

The marketplace offers several types of annuities. Your chosen type will depend on your specific situation, long-term goals, and risk tolerance.

Common Types of Annuities

FIXED ANNUITY
Fixed annuities are simple conservative investments for individuals who prefer investments with guaranteed rates of return and zero downside risk.  The interest is credited much like a CD, but with more attractive rates.  Annuities are tax-deferred.  This allows interest to accumulate without paying tax until you make withdrawals.
FIXED INDEXED ANNUITY
Fixed indexed annuities (FIAs) provide a return on the account paid by the issuer that tracks a market index—such as the S&P 500—typically subject to a cap or spread (a maximum possible return for the period). The issuer typically guarantees that the principal is protected if the selected index is negative (your investment will never go down).  This can be a great option to help balance the risk of the portfolio.  Funds in these accounts are safe from market risk while providing the opportunity to potentially make higher returns than other fixed investment products such as bonds, money market, and CDs.
QUALIFIED LONGEVITY ANNUITY CONTRACT (QLAC)
QLACs provide a guaranteed stream of income later in life. You can use some money from a 401(k) or IRA to purchase a QLAC, and they can help you reduce your retirement account withdrawals mandated at age 72, which helps to defer some income taxes.
VARIABLE ANNUITY
Instead of receiving the fixed rate of return on the money invested in an annuity (like a fixed annuity), a variable annuity allows investors to allocate their principal annuity money into one or more investment subaccounts that include mutual funds, money markets, and ETF options.  The account can go up and down with the underlying investments tied t the market.  Variable annuities CAN lose money due to market risk and, therefore, can affect guarantees provided in the contracts.  With more risk comes the opportunity for potentially higher returns.
SINGLE PREMIUM IMMEDIATE ANNUITY (SPIA)
Unlike deferred annuities, an immediate annuity has no accumulation phase and begins paying out income immediately (or within a year) after the purchase with a single, lump-sum payment.
Older couple looking at FIA options on screen

The Best Of Both Worlds

When we look at the attributes of the above options, Fixed Index Annuities (FIAs) are most often chosen. FIAs are long-term tax-deferred investments that smooth out the volatility of the markets. FIAs provide principal protection when the markets are down and give investors growth opportunities when things are good. The result is better growth potential than a fixed annuity combined with less risk than the risk of a variable annuity, and they don’t have the maximum limits of a QLAC; most investors consider FIAs the Goldilocks of annuities.

FIAs’ returns are based on their underlying index’s returns, such as the S&P 500. The S&P 500 is a basket of 500 of America’s largest companies (large caps) from a diverse range of industries making up a broad segment of the U.S. market. Investment advisors taut the benefits of a diversified portfolio, and by following the S&P 500, FIAs are considered a well-diversified investment. Other indexes can be used as a FIA’s underlying index in place of the S&P500, but all FIAs follow their benchmark and the market in general; however, your money is never exposed directly to the stock market.

Who is an annuity for?

Annuities are flexible tools.  Of course, anyone looking to turn savings into an income stream will want to consider annuities.  Annuities are also great for diversifying an overall portfolio allocation.  They can provide safer and potentially higher interest than other low-risk investments.

Adult and child sitting under tree

Common Features of Annuities

Annuities Provide Tax-Deferred Growth:

Annuities grow tax-deferred.  This means your annuity will earn interest, and you will not pay tax on the interest until it is withdrawn.  An important note: Annuities can be purchased in an IRA.  IRAs are tax-deferred as well, so there is no additional tax deferral benefit annuity IRAs. However, there are several other features that make an annuity IRA an investment to consider.

They Have No Contribution Limits:

Unlike 401(k)s and IRAs, annuities have no contribution limits; annuities can be used as a great supplement to your 401(k) or IRA; especially if you have maxed out your contributions.

Annuities Have Living Benefit Riders:

These mean that you will have a guaranteed stream of income that, no matter how long you live, will last for the rest of your life. Some annuities also provide principal protection (which means the premium never goes down or has a minimum guaranteed rate of increase).

You Can Earn Interest On Your Investment:

Fixed-rate annuities provide a guaranteed rate of return. However, with FIAs QLACs and Variable Annuities, you can potentially grow your investment dollars based on the returns of the stock market or other subaccount investments. Annuities allow you to choose which option you prefer.

Guaranteed Death Benefit:

Annuities have a guaranteed minimum return for your invested capital, or they lock in the annuity’s gains for your beneficiaries. Because annuities are a life insurance product, they allow your heirs to avoid probate.
Have questions or need help deciding which annuity is best for your situation? Book a financial planning consultation here

An Annuity is a long-term financial product designed largely for asset accumulation and retirement needs. All guarantees are backed by the claims-paying ability of the issuing insurance company. Annuities generally contain fees and charges which include, but are not limited to, surrender charges, administrative fees and for optional contract riders and benefits. Withdrawals and death benefits may be subject to income tax. If withdrawals and other distributions are received prior to age 59 ½, a 10% penalty may apply. Annuities typically carry surrender charges for several years that may be assessed against withdrawals. Certain annuity product features, such as stepped-up death benefit, a bonus credit, and a guaranteed minimum income benefit, will generally incur additional fees. If you are investing in an annuity through a tax-advantaged plan such as an IRA, you will get no added tax advantage. Any comments regarding safe or secure investments or guarantees of income refer only to fixed insurance products and do not refer in any way to securities or investment advisory products.

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