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Five things you need to know about annuities

You don’t want to take many risks when it comes to your retirement nest egg. According to US Today, $1.7 million is that magic number. Why so much? Unexpected health costs, retirement homes, travel, insurance, and other unforeseen financial obligations add up. But, as far as financial plans are concerned, an annuity – especially a fixed one — is about as safe an investment as you can get. Below are five reasons why an annuity is a smart option when planning for your retirement years:

 

1) What is an annuity?

A fixed or a variable annuity is a type of insurance that serves as an investment plan giving you protected income for a specified period of time.

 

2) How does it work?

Payments can be made in a lump sum or can be spread out with several contributions over time. The payouts you receive will depend on the details of your policy and the type of annuity you pick. There are also plenty of annuity policies. Aside from the variable and equity-indexed annuities, a fixed annuity is a popular option among those who are making retirement plans late in age since the risk of losing money is minimal as opposed to stocks and bonds.

 

3) What is the difference between a life annuity or a term annuity?

You can choose a life annuity or a term annuity. Regular payments of a predetermined amount are made with a life annuity, as opposed to a term annuity, in which payments continue until the annuity product expires.

 

4) Why get a fixed annuity?

Fixed annuities are ideal for those who want a more stable source of income. Unlike other types of investment vehicles, fixed annuities allow you to lock in a rate of earning that will stay constant, regardless of the ups and downs in the market.

 

5) Annuities come with more guarantees than other investments

With a fixed annuity policy, you get competitive fixed yields, guaranteed minimum rates, tax-deferred growth, withdrawals, and guaranteed income payments. It also ensures the safety of your principal investment. An annuity is similar to retirement accounts like a 401 (k) or an IRA and both provide you with accumulated assets you can withdraw in your retirement. However, those assets are subject to market risks – unlike fixed annuities.

 

Now what?

You’ll want to work carefully with a financial advisor to go over rates, withdrawal options, etc. when choosing a fixed annuity. Tax implications, funding options, as well as payment terms need to be weighed. Still unsure if an annuity is right for you? A representative from the Peak American Financial will explain everything you need to know about this type of investment and how it can help you build a secure future for you and your family.

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