Annuities
There is no financial product that is more misunderstood than annuities! They have become more complex and confusing to investors. However, with education and illustrations, and an understanding of risk/fees, one can make an intelligent choice.
Annuities are sold by two different types of groups. Stockbrokers (security licensed) and those sold as Insurance agents. (insurance licensed)
IMMEDIATE ANNUNITY
With an immediate annuity, also known as an income annuity, you begin receiving payments within a year after purchasing it. An immediate annuity is typically funded by a retirement account, such as a 401(k), and might be a good option for those ready to leave the workforce but still want to maintain a steady income.
FIXED ANNUITY
Fixed annuities come with a guaranteed, set interest rate that doesn’t vary beyond the terms of the contract. While other investments might soar or dive, the fixed annuity is steady. Sometimes, however, the interest rate will reset after a predetermined number of years.
MULTI-YEAR GUARANTEED ANNUITY (MYGA)
A multi-year guaranteed annuity, or MYGA, is a type of fixed annuity. It offers a fixed interest rate for a specified period of time — typically three to 10 years. An MYGA is generally best suited for people nearing retirement looking for a way to defer taxes while guaranteeing a return on their investment.
EQUITY INDEX ANNUITY
The payout you receive from fixed-index annuities is tied to a market index — such as the S&P 500 or Nasdaq. Fixed-index annuities also protect you against losing any of your principal if the index declines. This makes a fixed-index annuity potentially safer than investing directly into an index fund. To pay for this protection, fixed-index annuities set limits on both your gains and your losses.
VARIABLE ANNUITY
A variable annuity provides you with periodic payments based on the performance of sub-accounts that fund the annuity’s growth. So, your payments may fluctuate. Sub-accounts work in a way similar to mutual funds. The amount of your payments may be higher if the sub-accounts perform well, or they’ll be smaller if the sub-accounts lose value.