Annuities Explained: What They Are and How They Work
An annuity is a contract with an insurance company designed to help grow money, provide retirement income or accomplish both. You make one payment or a series of payments, and the insurer provides benefits based on the contract’s terms.
Common Types of Annuities
Fixed annuities offer interest based on rates set by the insurance company.
Fixed indexed annuities credit interest partly according to the performance of a market index, subject to contract limits such as caps or participation rates.
Variable annuities allow money to be placed in investment options. Their value can rise or fall with market performance.
Annuities may also be:
Immediate, with income beginning soon after purchase
Deferred, with money accumulating before income begins
Income Options
Depending on the contract, income may be paid:
For your lifetime
For the lives of two people
For a set number of years
Through scheduled withdrawals
Some choices may be permanent, so review the terms carefully before selecting an income option.
Possible Fees and Charges
Annuities may include:
Surrender charges
Administrative fees
Investment expenses
Rider fees
Sales commissions
Early withdrawals may also result in taxes, penalties or reduced contract value.
Questions to Ask Before Purchasing
Before buying an annuity, ask:
What goal will this annuity help me meet?
How are earnings calculated?
Can the contract lose value?
What fees and surrender charges apply?
When can I access my money?
What happens when I die?
Are income guarantees included?
How does this option compare with other retirement strategies?
The Bottom Line
An annuity may provide tax-deferred growth or retirement income, but it is a long-term contract with rules, fees and limitations. Review the full contract and make sure it fits your financial goals before purchasing.
Contact MRW Solutions Group to learn more about annuity options and retirement-income planning.
This article is for general educational purposes and does not provide individualized investment, tax or legal advice. Guarantees depend on the claims-paying ability of the issuing insurance company.
Comments