If you’re approaching retirement, you’ve undoubtedly heard about annuities. They’re often used by retirees to achieve a range of financial goals, like income generation, risk management, and much more.
Annuities aren’t new, however. In fact, they’ve been around since ancient Roman times, when Roman soldiers would receive lifetime annuity payments after returning home from war. Throughout history, annuities have been used to fund government projects, pay legal claims, and reward public servants with retirement benefits.
In recent years, annuities have become widely available for individuals to use to fund their own retirement. An annuity could help you achieve your retirement goals.
Not sure what an annuity is or how they work? Below are a few basics to get you started. Remember, there are a wide range of annuities designed for different needs, goals, and situations. It’s important to choose the tool that’s right for your objectives.
How does an annuity work?
In its simplest form, an annuity is an income tool. You contribute a lump sum amount and those funds are converted into an income stream that is guaranteed for the rest of your life, no matter how long you live. That process is called annuitization.
Some annuities, called immediate annuities, exercise the annuitization process as soon as the contract is opened. With other annuities, called deferred annuities, annuitization doesn’t happen for years, and may not ever happen. In those contracts you have the opportunity to grow your funds in a tax-deferred manner before you start taking income.
What are the different types of annuities?
Annuities are generally broken into two categories: immediate and deferred, as described above. However, there are many different types of annuities in each group. For example, some immediate annuities cover your lifetime, while others cover specific periods of time, like 10 or 20 years. Some immediate annuities cover one lifetime while others cover multiple.
Deferred annuities are usually classified by the ways in which you can accumulate assets before annuitization. Fixed annuities accumulate interest. Variable annuities allow investments into the financial markets and offer greater upside, but also downside risk. Fixed indexed annuities feature a mix of both elements, with interest rates that are based on market returns.
How do I know if an annuity is right for me?
An annuity can be a helpful and valuable retirement planning tool, but it’s not right for everyone. You should use an annuity if it’s the right strategy for your unique needs and goals.
At America’s Annuity, we can help you analyze your goals and develop a strategy to reach them. We can also help you determine if an annuity is right for you and which type makes the best choice.
Contact us today to learn more. Let’s connect soon and start the conversation.
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