What is an Annuity?
An annuity is basically a contract between the buyer and the insurance company. In return for the premium paid, the insurance company agrees to pay you a fixed sum of money, typically for the rest of your life. There are however many different kinds of annuities and how an annuity works depends on what type of annuity it is.
Types of Annuities
Fixed Deferred Annuities: This annuity is usually purchased by people close to retirement that are still accumulating funds. A fixed annuity is attractive because it usually pays a fixed rate of interest and therefore has little or no risk. The risk investors are subject to is the ability of the insurance company to be solvent and pay you your income. That is why it is very important to select an insurance company that has a solid credit rating.
The earnings generated during the accumulation period are not taxed until they are withdrawn. Some deferred annuities can also have very flexible contribution rules and payout options.
Immediate Annuities: This annuity is usually funded with a lump sum payment. In exchange for your payment, you will receive an income, usually monthly. There are many payment options to choose from such as: Life Only, 100% Joint & Survivor, 50% Joint & Survivor, Life with Refund, Term Certain etc.
Indexed Annuity: This annuity allows you to participate in investment returns linked to an index like the S & P 500. Your participation in this return is usually limited to a certain percentage called a cap. This annuity is also designed to protect you from down markets and will offer a guaranteed minimum interest rates or floor which is commonly zero percent interest.
Variable Annuity: These annuities invest in various subaccounts and can have a high degree of risk and significant underlying charges and fees. At Dutchess County Agent, we do not solicit nor recommend this type of product to our clients.
How to Get an Annuity Quote
If you are a candidate for an annuity, we can help you select an annuity that meets your retirement planning objectives. Gives us a call to arrange a consultation.
We look forward to hearing from you.