What’s the Fuss About Annuities?
Chances are, you’ve heard a lot about annuities, but let’s cut through the hearsay and get to the facts. At B.O.S.S. Retirement Solutions, we work with families every day to help build their retirement income strategies and are well-versed in the ins and outs of insurance products, like annuities.
Here are the answers to some frequently asked questions about annuities.
What is an annuity?
An annuity is a contract you purchase from an insurance company. In exchange for the premium you pay, you receive certain fixed and/or variable interest crediting options that compound interest-tax-deferred until withdrawn. When you’re ready to receive income, an annuity offers a variety of guaranteed* payout options through a process known as annuitization. There are many types of annuities and some help to protect against outliving your retirement income by providing a lifetime income stream.
*Guarantees backed by the financial strength and claims-paying ability of the issuing insurer.
How many types of annuities are there?
You have several choices when it comes to buying an annuity:
- Fixed annuities: Guarantee a minimum fixed interest rate for a specific number of years and a variety of annuitization payout options — including the option for guaranteed income for life.
- Fixed index annuity: A type of fixed annuity in which credited interest is linked to positive performance of an external index without actual participation in the market. Annual interest credits are locked in, protecting principal and accrued interest from loss due to market fluctuations. However, it is important to note that withdrawals will reduce the contract value and the value of any protection benefits. Additional withdrawals taken within the contract withdrawal charge schedule will be subject to a withdrawal charge. All withdrawals are subject to ordinary income tax and, if taken prior to age 59 ½, may be subject to a 10 percent federal additional tax.
- Variable annuity: A variable annuity allows you to invest your premium among a variety of investment portfolios. Payouts are determined by the performance of the investments you choose and, if performance is poor, principal could be at risk. Because variable annuities involve investment in securities, they can only be sold by a financial professional with the appropriate securities license.
- Immediate annuity: With an immediate annuity, you use a lump sum of money to purchase a contract from an insurance company in return for a guaranteed series of payouts. The amount of the payout is based on several factors, including how much money you used to buy the contract, the interest rate environment at the time you purchased the contact, the payout option you select, your life expectancy, the date you select for your first payment and any additional features you choose.
Could an annuity be suitable for me?
That depends on many factors. What are your goals for retirement? What is your current level of assets? When do you plan to retire? It’s usually a good idea to sort through those questions with a financial professional who can look at your specific financial situation, provide you with complete information about the pros and cons of annuities and help you determine if an annuity makes sense as part of your retirement income strategy.
We hope this helped to clear up a few questions you may have had about annuities. Remember, when it comes to achieving your retirement goals, knowledge is power!
If you would like more information on annuities and how they can help you achieve your retirement goals, give us a call at 801-990-5055 or click here to request your complimentary, no-obligation consultation.
Our firm assists retirees and pre-retirees in the creation of retirement strategies utilizing investment and insurance products. Advisory services offered through B.O.S.S. Retirement Advisors, a Registered Investment Advisory firm, and offered through Global Financial Private Capital, LLC, an SEC Registered Investment Advisor. Insurance products and services offered through B.O.S.S. Retirement Solutions. To see a list of services please visit us at bossretirement.com/services.
This content is provided for informational purposes only. It is provided by third parties and has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.We are not affiliated with any government agency including the Social Security Administration.
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