Annuities
People buy annuities to have a guaranteed lifetime retirement income or to safely build savings. There are two types of annuities. The difference between the two is primarily when annuity payments begin.
- Deferred annuities allow you to save money for retirement or other reasons. You do not have to pay taxes on your earnings, or contributions if your annuity is an individual retirement account (IRA), until you withdraw the earnings.
- Immediate annuities allow you to create an income stream. For example, if you get money from an inheritance or the sale of property, you can use the money to set up an immediate annuity that will pay you monthly for the rest of your life.
Deferred and immediate annuities offer several options you can choose from. The options provide various levels of potential risk and return:
- Fixed annuities are guaranteed to earn a minimum interest rate. They are the lowest financial risk but provide lower returns.
- Index-linked annuities earn a higher interest rate, but there is not a guaranteed minimum interest rate. They are low-to-moderate risk and provide moderate returns.
- Variable annuities allow you to choose between sub accounts that are similar to mutual funds. You can earn more, but there is not a guaranteed return. Variable annuities are higher risk because there is a chance you could lose some or all of your money. NOTE: The Texas Department of Insurance, the SEC, and FINRA each have published warnings against buying variable annuities, even though brokers and bankers continue today to “sell” them. Retirewell Solutions will not offer variable annuities due to their risk of principal loss and high fees.
Fixed annuities
Fixed annuities are not risky because the investment risk is with the insurance company, not you. If investment performance is more than what the company needs to pay the guarantees, the difference is added to the company’s surplus. If performance is low, the insurance company bears the loss.
Fixed annuities guarantee a minimum interest rate, between 3% and 4%. The company might pay a higher interest rate than the guaranteed interest rate.
Index-linked annuities
Index-linked annuities show gains or losses based on returns in indexes. Index-linked annuities are more complex than fixed deferred annuities. It is important that you understand the features of the annuity you’re considering and what they mean.
Looking to replace an old annuity?
Retirewell Solutions specializes in knowing annuities inside and outside. We make it our business to know which policies are the better designed policies, like which policies are structured best for top performance and earning potential. We know which policies offer true cash bonuses versus income-based bonuses, which carriers include the best long-term-care type benefits, and which carriers offer the most liquidation of policy options.