Annuities

Pay Yourself in Retirement

Annuities may be one of the most common, most utilized, yet most misunderstood financial products available to consumers today. In fact, many investors have no idea that there are actually multiple different and unique types of annuities available to them. Instead, many people have been misled by both the media and certain financial personalities who misrepresent and lump all annuities together as if each one works exactly the same.

So, what exactly is an annuity? According to the dictionary, an annuity is an amount of money that is systematically paid to a person for a specified period of time, often for the rest of his or her life. Essentially, an annuity can be used as a tool to help people create another income stream. Today there are various different types of annuities available to consumers, and it’s often likely that it would make sense for you to have at least one of them in your overall retirement plan.


Variable Annuities, Fixed Indexed Annuities, and Fixed Annuities are generally considered for a person who has sufficient cash or other liquid assets for living expenses and other unexpected emergencies, such as medical expenses. A fixed indexed annuity is not a registered security or stock market investment and does not participate directly in any stock or equity investment or index. Annuities are not deposits of or guaranteed by any bank and are not insured by the FDIC or any other agency of the US.

FAQs

Are annuities a good investment?

Annuities aren’t investments — they’re insurance contracts for income and protection. They’re a good fit when you need guaranteed lifetime income or principal protection, and a poor fit when liquidity and maximum growth matter most. The honest answer depends on the job you need the money to do.

Fixed annuities pay a guaranteed rate. Fixed indexed annuities credit interest based on a market index with downside protection but capped upside. Variable annuities invest directly in markets with full upside and downside. Fees, guarantees, and complexity differ significantly across the three.

Surrender charges if you withdraw early, limited liquidity, caps or participation rates that limit growth, fees on some contract types, and complexity. Any advisor who won’t walk you through the downsides before the benefits isn’t giving you the full picture.

Your principal is protected from market losses by the issuing insurance company — a 0% floor in down years. You can still lose ground to inflation, to surrender charges on early withdrawals, or through rider fees. Guarantees depend on the claims-paying ability of the insurer.

A common approach: only enough to fill the gap between essential expenses and your guaranteed income (Social Security plus pension). Most planners avoid putting a majority of liquid assets into annuities so you keep flexibility and growth potential elsewhere.

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