Tools designed specifically for your unique retirement needs and goals.
What if you could create a retirement plan that was built on a foundation of guaranteed lifetime income and protection from market volatility? You can do that through the use of annuities.
Annuities offer a range of features and benefits that help you enjoy a comfortable and financially-stable retirement. Not all annuities are the same, however. There are several different types of annuities, and each serves a differents set of needs and goals. Below are some of the most common types of annuities we use at America’s Annuity as part of our retirement strategies for our clients:
At its core, an annuity is a guaranteed income stream. This income is generated through a process called “annuitization.” The annuity provider, usually an insurance company, pays you a guaranteed stream of income for life or for some other defined period. The income amount is based on your age, the amount of money you contribute to the annuity, interest rates, and other factors.
In an immediate annuity, the annuitization process happens as soon as you open the policy. You contribute a lump sum amount and that contribution is converted into a guaranteed income stream. You essentially convert some of your savings into a lifetime pension. An immediate annuity can be a good choice for those who want to maximize their guaranteed income in retirement.
With a deferred annuity, the annuitization process doesn’t happen right away. It may happen years after you open the policy. In many cases, a deferred annuity is never converted into annuitized income.
In a deferred annuity, your contributions fund a cash value account inside the annuity. That cash value account can grow tax-deferred. The manner in which the cash value grows depends on the type of deferred annuity that you own. Some of the most popular types of deferred annuities include:
a. Fixed Annuity
In a fixed annuity, your cash value can grow via interest payments. When you open the annuity policy, you sign up for a guaranteed interest period. These periods can be as short as one year or as long as 10 years. The length of time depends on the specific carrier and the terms of the policy. Your interest rate is locked-in during this guaranteed period. After the guarantee period is over, your interest rate may fluctuate. Fixed annuities are often attractive to those who want some growth opportunity, but don’t want exposure to market volatility.
b. Variable Annuity
In the case of a variable annuity, your cash value is invested in a portfolio of “subaccounts,” which are similar to mutual funds. Most variable annuities offer a wide range of investment choices, so you can build an allocation to meet your risk tolerance.
A variable annuity could be appealing if you want the potential for higher returns and are willing to withstand some level of risk. Also, many variable annuities offer optional benefits that allow you to limit downside losses and even create guaranteed streams of income.
c. Fixed Indexed Annuity
Like the risk-free aspect of a fixed annuity and the upside potential of a variable annuity? There’s a middle option that could be right for you. It’s a fixed indexed annuity, which offers downside protection with growth opportunity that is linked to market returns.
With a fixed indexed annuity, your cash value receives interest on an annual basis. However, that interest rate is dependent upon the performance of a specific market index, like the S&P 500. If the index performs well, you receive a higher rate. If it performs poorly, your rate could be lower. However, many indexed annuities have minimum interest rates, meaning you won’t lose money even if the index declines in value.
3. Income Annuity
An income annuity is similar to an immediate annuity with one big difference – the annuitization is deferred until some point in the future. An income annuity can be helpful in planning future cash flow needs.
For example, you may want to guarantee a stream of income that will begin five, 10, or even 20 years in the future. With an income annuity, you can contribute a specific amount today and then have the certainty that you will receive a specific amount of income in the future.
Hybrid annuities are those that include a variety of different benefits. The specifics of each hybrid annuity depends on the provider and the terms of the policy. For example, some hybrid annuities offer a combination of a fixed, risk-free interest rate and a variable, market-linked component. This allows you to enjoy both growth potential and financial stability.
Other hybrid annuities combine income guarantees with other benefits, like a death benefit similar to that provided by life insurance. Some policies may offer long-term care protection or accelerated benefits in the event of terminal illness. There are a wide range of hybrid annuities designed to meet many types of retirement needs and goals.