Annuities are financial products that provide a stream of income over a specified period of time or for the lifetime of the annuitant. There are two main types of annuities: immediate annuities and deferred annuities. Immediate annuities start paying out income within a year of the purchase date, while deferred annuities allow for a period of accumulation where the annuitant’s funds are invested, and income payments are deferred to a future date.
Both types of annuities offer different benefits and drawbacks, and the choice between them depends on the individual’s goals, financial situation, and retirement planning needs. It’s important to consider factors such as age, investment goals, and risk tolerance before deciding between an immediate or deferred annuity.
Moreover, both immediate and deferred annuities can be purchased as a fixed rate of return or as an indexed annuity.
An immediate annuity is a type of annuity contract where the payment to the annuitant starts within one year of the purchase date. The annuitant makes a lump-sum payment to the insurer and in exchange, the insurer provides a guaranteed stream of income payments for a specific period of time or for the lifetime of the annuitant.
An immediate annuity is often used for retirement income planning. The payments from an immediate annuity can provide a steady source of income during retirement and can help with budgeting and financial planning. The amount of the payments is based on factors such as the annuitant’s age, the amount of the lump-sum payment, and the interest rate at the time of purchase.
There are different types of immediate annuities, including fixed and indexed annuities, and annuities with guaranteed payment periods. The terms and conditions of each type of immediate annuity vary, so it is important to understand the specifics of each before making a decision to purchase.
A deferred annuity is a type of annuity contract where the income payments are postponed to a future date. The annuitant (purchaser) makes contributions to the annuity, which are invested and grow tax-deferred. The accumulation period allows the funds to grow over time, and the income payments are not received until a later date, typically during retirement.
There are different types of deferred annuities, including fixed, variable, and indexed annuities, each with its own features and benefits. Deferred annuities are commonly used for retirement planning, but can also be used for other financial planning goals.
Fixed annuities and indexed annuities are both annuities. The primary difference between them is how the funds grow during the accumulation period:
Fixed annuities offer stability and a guaranteed minimum return, but often have a lower potential for growth compared to indexed annuities. Indexed annuities offer the potential for higher returns based on stock market performance, but also come with greater risk. The choice between a fixed or indexed annuity depends on an individual’s investment goals, risk tolerance, and financial situation.
In general, immediate annuities provide a guaranteed stream of income payments and the annuitant cannot lose their original premium. The payments are based on factors such as the annuitant’s age, the premium amount, and interest rates, and are not subject to market fluctuations.
With deferred annuities, there is a risk of loss if the annuitant withdraws funds before the maturity date, and there may be fees and charges for early withdrawal. The funds in a deferred annuity grow through investments, and the value of the annuity can go up or down based on the performance of those investments.
It is essential to understand the specific terms and conditions of each type of annuity, including any fees, charges, and restrictions on withdrawals, before making a decision to purchase.
Moreover, even though your annuity cannot lose money, the insurer will continue to charge for administrative fees, optional rider costs, and other expenses that are listed below:
The specific fees and charges vary depending on the type of annuity and the terms of the contract, so it is important to carefully review the fee schedule and understand the fees associated with the annuity before making a decision to purchase.
Most insurance and annuity companies offer various optional riders that you can purchase for additional benefits:
The optional riders that will be available for you will depend on the insurance/annuity company you choose and the type of annuity you purchase.
Generally speaking, investing in annuities is a solid solution for accumulating wealth for retirement. Part of your decision whether to purchase an annuity should also be based on your expected tax liability when the time comes to start receiving your income. Knowing this, we encourage you to contact the team at LIfeInsure.com so you can take advantage of good financial advice from an experienced professional.
You can reach us during working hours at 866-868-0099 or contact us through our website at your convenience.
A Single Premium Deferred Annuity (SPDA) is an annuity contract purchased with a single lump sum payment. The annuitant can elect to start receiving payments immediately or defer taking them until a later date.
An immediate annuity is purchased with a single payment so the annuitant can start taking payment right away,
Yes. Your contributions in your annuity earn tax-deferred interest but you will begin paying income taxes when you start receiving income from the annuity.
If you surrender your annuity early, it will trigger the taxes that have been deferred up until that point. Possible exceptions for annuity surrender charges include death benefits, nursing home admission, and terminal illness.