What is an Annuity?
There are simply put two major types of annuities. The first is an annuity that is being deferred to the future and the other type is an immediate annuity.As the names imply a deferred annuity invests your money for a period of time until you decide to turn on the income stream, whereas an immediate annuity starts paying you income immediately after the funding process. Within the two main annuity categories of immediate and deferred there are again different types of annuities available. There are annuities that are fixed and there are annuities that are variable and you can set up the annuity so that it contains certain riders and extra features.
While there is risk associated with a variable annuity, many offer guarantees of principal and downside protection at an additional cost and depending on contract rider availability. However, these guarantees do not apply to the investment performance or amounts held in the variable investment options. Some contracts have features such as enhanced death benefit riders and certain annuities have long term care features available. There can be more add on benefits available but it is important to always look at the pros vs the cost of adding a rider onto the contract.
The income from the annuity can also be structured in many ways such as paying income for the lifetime of one individual or paying income for 2 peoples lifetime. The structure chosen depends on the type of annuity and also depends on what the goal of the annuity is. In order to maximize the flow of income you would want to only have one person receive the income and have the income stop when this person passes away but sometimes that is not viable and lower incomes have to be chosen in order to make sure that survivors will continue to get income or at least get a benefit after the annuitant has passed away. Another factor within variable annuities is to look at what investment options are available and to see how aggressive you are allowed to invest your money. This can vary from contract to contract and finding the plan that fits your specific objective is very important.
As always make sure that whatever you decide on you do your research and make sure that you understand the pros and cons of the product and since annuities are contracts between you and the specific company do some research on the financial strength of the company that is issuing the annuity.
Written by CreativeNurse Team
This material contains the current opinions of the
[author) but not necessarily those of Guardian or its subsidiaries and such opinions are subject to change without notice.
Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice.
Annuities are long-term financial products designed for retirement purposes. In essence, annuities are contractual agreements in which payment(s) are made to an insurance company, which agrees to pay out an income or a lump sum amount at a later date. There are contract limitations and fees and charges associated with annuities, administrative fees, and charges for optional benefits. A financial professional can provide cost information and complete details. Variable annuities are subject to fluctuation in value and market risk, including loss of principal.
Withdrawals of taxable amounts will be subject to ordinary income tax and possible mandatory federal income tax withholding. If taken prior to age 59½, a 10% IRS penalty may also apply. Withdrawals affect the variable annuity’s death benefit, cash surrender value and any living benefit and may also be subject to a contingent deferred sales charge.
Variable annuities and their underlying variable investment options are sold by prospectus only.
Investors should consider the investment objectives, risks, charges and expenses carefully before
investing. This and other information are contained in the prospectus or summary prospectus, if
available, which may be obtained from your investment professional. Please read it before you invest
or send money.
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