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What is an annuity?

An annuity is an insurance contract designed to provide income in the form of regular payments while also offering the potential for growth. Annuities are most commonly thought of as a way to create a steady and reliable income stream for retirement.

Unlike life insurance, annuities provide insurance against the risk of outliving your money after you stop working. You get the potential to grow your savings and create guaranteed income for life, helping you to retire your way.

While pensions and Social Security benefits can offer some inflation-adjusted guaranteed income for retirees, they often are not enough to replace earnings and do not provide opportunities for market participation and growth.

Annuities may seem to function as an investment (that is, you put your money in and accept the risk of whether it increases or decreases). However, they鈥檙e actually insurance contracts with predetermined parameters. In general, if you follow the rules of the annuity contract, you receive certain guarantees in return.

Annuities made simple

How to create a stream of guaranteed income

 STEP 1 

Select your annuity type.

 STEP 2 

Pay a premium 鈥� via lump sum or installments 鈥� to the insurer.

 STEP 3 

Receive payouts based on the terms of your contract.

How does an annuity work?

Some annuity products are funded with a one-time contribution, while others allow for future premium payments to be made.

When the time comes to start receiving payments, also referred to as 鈥渄istribution,鈥� you will receive those payments based on factors including your age, your annuity鈥檚 accumulated value, and more.  

What can an annuity do for you?

An annuity can help those preparing for retirement balance their desire to both preserve and grow their future retirement income, while helping manage market volatility and risk.

Tax deferral

Annuities can help you increase savings because you won't pay taxes on growth until you withdraw money.

Growth potential

An annuity has the potential to grow your money while also helping manage risk of loss.

Risk management

Annuities can provide a level of protection to help manage market risk.

When you might need an annuity

Annuities are most commonly considered alongside a retirement savings strategy, since they may provide guaranteed income for individuals who are preparing to leave work behind for good. If you're in one or more of the following situations, an annuity could be a good fit:

  • You're saving for retirement
    If you're already contributing the maximum to other retirement plans, like an IRA or 401(k), an annuity can be an attractive retirement planning option that grows tax-deferred.
  • You won't need the money soon
    You don't anticipate needing money from savings prior to turning 59陆.
  • You're worried you might outlive your savings
    Annuities can provide guaranteed income for the rest of your life, whether you live to be 100 or even 120.
  • You want to leave a legacy
    With an annuity, you can provide your loved ones with a death benefit in the event of your death.

Is an annuity a good option?

Annuities are designed to help protect against longevity risk (the risk that you may outlive your retirement savings). They can also help you accomplish other important goals, such as leaving a meaningful legacy for your family or achieving tax-conscious portfolio growth. 

Like any other written contract or financial product, it鈥檚 important to consider both the potential benefits and terms of the agreement carefully to determine if it鈥檚 the right fit for your unique financial needs. Your financial professional can help you accomplish this. The good news is that today there are more options than ever when it comes to finding an annuity that fits your financial goals.

Different types of annuities

Annuities come in different types to help meet different needs. One of the ways they vary is by the amount of potential risk and return. Immediate annuities have less risk and lower return because they simply convert an amount of money into a guaranteed stream of income. The annuities with increasing risk and return are generally used to accumulate money over time. Because they don鈥檛 provide immediate income, they鈥檙e known as deferred annuities.

continuum graph of 5 annuity types where they increase based on their higher risk potential return levels

Single Premium Immediate Annuities (SPIAs)

Income you can count on.

An immediate annuity helps make retirement planning easier because it鈥檚 predictable. In exchange for a lump sum of money, an immediate annuity pays a guaranteed amount for a specified time period, including as long as you or your spouse live.

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Single Premium Immediate Annuities

Fixed Annuities

Protect and grow your savings. Plan with confidence.

A fixed annuity provides you with tax-deferred growth at a fixed rate of interest set by the annuity provider for a period of time specified in the annuity contract. It also offers the opportunity to produce a guaranteed stream of retirement income you cannot outlive.

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Multi-Year Guarantee Annuities

Fixed Indexed Annuities (FIAs)

Pursue growth potential without sacrificing security.

With a fixed indexed annuity, the interest on a portion of your premium is tied, in part, to a published stock market index, giving you the opportunity to benefit from market trends without owning stocks. Your principal is protected from loss due to market downturns. A fixed indexed annuity may also include or offer optional riders that can be purchased or automatically attached to the annuity for a charge. Rider features vary by product, and can offer benefits like lifetime income, increased liquidity, or a death benefit option.

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Fixed Indexed Annuities

Registered Index-Linked Annuities (RILAs)

Pursue growth opportunities while enjoying a level of protection from market risk.

Registered index-linked annuities provide exposure to a published stock market index along with a level of protection from market loss. While this kind of annuity tracks the movement of an index, it does not directly invest in any stock or equity vehicle. Because you assume some of the risk of loss from market downturns, a registered index-linked annuity may allow for greater growth potential than other annuities.

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Registered Index-Linked Annuities

Variable Annuities (VAs)

Capitalize on market performance.

Variable annuities allow for direct investment in sub-accounts similar to mutual funds. While VAs offer higher growth potential, they also have higher risk than other annuities. For that reason, most people purchase variable annuities when they have the ability (and risk tolerance) to absorb the impact of market declines.

An 麻豆传媒 Financial Professional can help find the product that鈥檚 right for you. Contact Us 

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Understanding basic economic trends can help you make more confident financial decisions. Here鈥檚 what you should know about the market and creating a sound retirement plan.

Indexed annuities are not stock market investments and do not directly participate in any stock or equity investments. Market indices may not include dividends paid on the underlying stocks, and therefore may not reflect the total return of the underlying stocks; neither an index nor any market-indexed annuity is comparable to a direct investment in the equity markets.

Guaranteed lifetime income is available through annuitization or an income rider. Income riders may be built into the contract or optional for a charge.

Under current tax law, the Internal Revenue Code already provides tax deferral to qualified money, so there is no additional tax benefit obtained by funding a qualified contract, such as an IRA, with an annuity; consider the other benefits provided by an annuity, such as lifetime income and a Death Benefit.

Registered index-linked annuities have a risk of substantial loss of principal and related earnings. They are designed to be a long-term investment product used to help provide income for retirement and are not suitable as a short-term investment. 

Registered index-linked annuities can only be marketed and sold by securities licensed financial professionals. Any discussion of this product must be preceded or accompanied by the product brochure and prospectus, which provides more detailed product information, including all charges or limitations as well as definitions of capitalized terms.