What Do I Need to Know About Annuities? Answers from DFW Annuities Experts:
The goal of Annuity Watch USA is to educate the public on how annuities really work. This site dispels myths, explores nuances in annuity products and explains how annuities add to your retirement portfolio in plain English. We have provided a wealth of information, but every person’s financial situation is unique, so we always encourage those with specific questions to set up an appointment with one of our DFW annuities experts.
Many people come to us with a variety of questions regarding annuities and their finances. Here are some of the most commonly asked questions we receive, and answers from our annuity experts. If you have further questions or would like to set up an appointment with one of our DFW annuities experts, fill out our contact form!
What is an Annuity?
In its simplest terms, an annuity is a long-term contract between an individual and an insurance company.
Annuities are designed to help you grow your retirement income and provide you with a source of protected lifetime income. Annuities can be an important part of your retirement portfolio because they can ensure that your retirement income is protected, even when there are market downturns. Once you purchase an annuity, any growth in your account may be on a tax-deferred basis while you continue to have control of your money. Today, as we see less people being covered by traditional pension plans, annuities can fill a critical gap in your retirement portfolios by providing a guaranteed monthly check for as long as you live.
What are the Different Types of Annuities?
Immediate Annuity:
Immediate annuities are the simplest type of annuities. You give the insurance company a sum of money, the premium, and they give you a payout each month for the rest of your life. The bad news is there is sometimes no death benefit with an immediate annuity. Without a death benefit, the insurance company stops making payments. In addition, any principal that is not taken as income is kept by the insurance company.
Fixed Annuity:
A Fixed Annuity is a contractual guarantee from an insurance company ensuring that they will pay you a fixed rate of interest for a fixed period of time. A fixed annuity grows tax deferred; you do not pay any taxes on the interest earned until you withdraw it. When buying a fixed annuity, be sure to read the fine print. Some companies offer multi-year contracts with an attractive interest rate, but that rate may only be guaranteed for the first year.
Variable Annuity:
Variable annuities offered a solution to the downside of low contribution limits. They allow you to invest in mutual funds inside a tax-deferred insurance vehicle with no investment limits. Keep in mind, the underlying investments in variable annuitiesare mutual funds. This means your principal is not guaranteed and will go down in value if the underlying investments go down in value. The insurance company could entice you buy offering a guaranteed a death benefit or an income value. But, variable annuities DO NOT offer principal protection.
Fixed Index Annuity:
A fixed index annuity combines the best features of the other types of annuities while eliminating some of their drawbacks. With a fixed index annuity, your principal will be protected. If the market goes up, you will get to participate in these gains. But, if the market goes down, you do not share in that loss. Therefore, you will not have to worry about any market crash affecting your retirement savings.
Are Fixed Index Annuities a Smart Choice?
There are a few factors to consider when deciding whether a fixed index annuity makes sense for you.
What retirement assets can you absolutely not afford to lose? It’s smart to protect those funds by investing them in FIAs. FIAs generate a steady income stream once you’ve reached retirement, and they also offer more opportunity for growth than other types of principal protected investments.
Another thing to think about is if you’ll be able to live comfortably without accessing your funds in the short term. Although all FIAs allow you to withdraw a small percentage of your money each year without a penalty (typically 10%), an annuity should be looked at as a long-term asset in your retirement portfolio. If you choose to cash out before the end of the contract term, you could be charged a fee.
FIAs are a great investment for those who want to benefit from long-term gains in the stock market index, while also protecting their portfolio against any losses.
See below for a few more resources from our DFW annuities experts on deciding if annuities are right for you:
Your Guide to Understanding Fixed Index Annuities
How to Choose an Annuity
The Difference Between Variable and Fixed Index Annuities
If annuities seem like a good fit for your retirement goals and you are interested in finding the best DFW annuities, reach out! Schedule a complimentary consultation by filling out this online form or call us at (972) 473-4700.
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