Understanding Annuities

WHAT ARE ANNUITIES?

An annuity is a contract between you and an insurance company that requires the insurer to make payments to you, either immediately or in the future.  You buy an annuity by making either a single payment or a series of payments. Annuities provide tax-deferred accumulation while you’re saving and income that you can count on when you retire.

WHY CHOOSE AN ANNUITY?

Saving for retirement is increasing in importance as people live longer.  Interest rates and stock market prices fluctuate and cannot guarantee at what rate your savings will grow.  Annuities are designed to help you achieve your goals for retirement savings.  They provide insurance against major financial risks such as market losses and outliving your money.

AN ANNUITY MIGHT BE A GOOD FIT FOR YOU IF YOU ARE LOOKING FOR:

* Growth you can count on - choose a fixed interest rate or interest tied to the performance of an external index.

* Protection for your principal - most companies who offer annuities, offer 100% protection from market downturns.

* Tax-deferred growth - save money without paying taxes on the interest until you take money out of your annuity.

* Retirement benefits - annuities can offer income that can't be outlived, access to funds for various health reasons, and a legacy for your loved ones.

There are five major categories of annuities — fixed annuities, variable annuities, fixed-indexed annuities, immediate annuities and deferred annuities.  Which is best for you depends on several variables, including your risk orientation, income goals, and when you want to begin receiving annuity income. 

For your particular situation, each type of annuity has advantages and disadvantages.  An immediate annuity, for example, pays the most but requires sacrifice of principal.  A variable annuity may increase your principal over time, but fees are particularly high.  What is important is that a potential annuity buyer become aware of the different types of annuities so that he or she can make the right decision about which type of annuity best fits their particular needs.