Annuities: Understand the Benefits

Annuity Benefits

Understanding Annuity Benefits

Using annuities within your retirement strategy, you may be able to receive a series of guaranteed* payments on a predetermined schedule. An annuity is essentially an agreement between an individual and an insurance provider. Your contract will provide the exact specifics. For example, if you will receive your payments on a monthly, quarterly, or annual basis. Annuities also come in multiple types. Should the stock market decline, fixed annuities will not experience a loss of principal. Conversely, variable annuities have the potential to yield higher profits, but they also run the risk of losing money in a down market. Last but not least, fixed indexed annuities (FIAs) can offer indexed interest at a reasonable rate of return** in addition to protection (backed by the claims-paying ability of the insurance company). For this reason, it’s our opinion that an FIA is the most useful of these products. Interested in learning more? Reach out to us today.

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Fixed Indexed Annuity Benefits

The biggest benefit of an FIA is that it protects your principal even in the event of a market drop. This is due to the fact that the insurance company supplying it is required to place your money in a reserve. However, the interest rate on an FIA is determined using the performance of a market index. This means that you may receive higher returns if the market rises, but you won’t lose any money*—no matter how much the market declines. You are protected by the policy and the strength of the insurance provider.

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Stages of an Annuity

The accumulation stage and the distribution stage are the two primary stages of an annuity contract. These are crucial to understanding annuity benefits in retirement. Basically:
  • You make contributions to the annuity and allow it to grow throughout the accumulation stage. Tax-deferred interest is calculated by tracking the performance of one or more indexes. The specifics of your contract will determine how the interest rate is determined.
  • The distribution stage begins upon taking withdrawals from your annuity. The contract will also specify when you are allowed to begin collecting money. You can also specify the rate at which you would like to receive payments.

Would you like to learn more about these products? Get in touch with us. One of the topics we cover at our informative seminar events is using annuities for retirement. Alternately, if you’d want to get right to the point, you can arrange a one-on-one meeting with us. We can talk about your specific circumstances and goals. Is an FIA the right option for you? Let’s talk it over together.