Annuities are insurance contracts between you and an insurance company in which the company promises to make periodic payments to you, starting immediately or at some future time. Annuities are popular because they can offer tax-deferred savings for retirement and a choice of income options to meet an individual's needs in retirement. As Americans live longer lives and have longer retirements, long-term thinking has become more essential. Many are turning to annuities to bridge the gap between savings and the prospects of a long life. Annuities are the only financial product that can turn a sum of retirement savings into guaranteed income for life. Some annuities also provide guaranteed income for a surviving spouse or dependent. Finding a way to make savings last is a challenge for today's workers and retirees. Fewer workers today are covered by traditional, employer-sponsored pension plans promising life-long benefits, and Social Security is not likely to provide future retirees the level of benefits it provides today. Because an annuity can provide lifetime income it helps offset worries many people have about managing their finances, running out of money in retirement, or living more frugally than they need to. No other personal financial product offers guaranteed income for life.
An annuity is a flexible retirement planning tool. It can be purchased over time (through a series of premium payments) or with a single lump sum. It can accumulate value that is based on a fixed interest rate or through investments in equities. You choose how and when payouts are made to you.
Fixed Annuities are the traditional form of annuities. The insurance company guarantees both the rate of return and the payout.
Unlike traditional fixed annuities, the policy owner may receive zero interest for a single period on a specific premium payment if the index performs poorly. However, with most Equity-Indexed Annuity policies, the premiums are protected and guaranteed to grow over time. This is a feature unavailable with any form of direct participation in the marketplace, such as through a mutual fund or a variable annuity.
In better market conditions, the owner of an Equity-Indexed Annuity may experience interest credits that outperform traditional fixed annuities. Because it is an annuity rather than a mutual fund, an Equity-Indexed Annuity offers important insurance features including tax deferral, a death benefit that may be paid outside probate and annuitization.
Please Note: The information provided here is for informational purposes only and is a summary of our understanding of the current tax laws and regulations as they relate to insurance, annuities, and qualified plans. The information provided is not intended to be used for purposes of avoiding penalties imposed under the United States Internal Revenue Code. You should consult with your own attorney, accountant, or tax advisor for legal, tax, or accounting advice.