Understand Your Options
You need to understand how annuities work before you can make a decision. Reach out to learn more and secure a protected, long-term retirement income.
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What’s An Annuity?
Annuities can provide a guaranteed lifetime income*. In addition, fixed annuities and fixed index annuities also provide protection of your principal, regardless of market conditions. In this way, both of these annuity types could help you secure your retirement savings.
However, fixed index annuities (FIAs) offer additional advantages. First, FIAs are tax-deferred. Therefore, any potential indexed interest you earn is not taxable upon credit of the interest. Instead, you only pay taxes when you withdraw your money.
Also, an FIA can provide a reasonable rate of return**, while securing your principal. Finally, FIAs may also have options riders, such as income riders or long-term care riders. This additional flexibility allows you to plan for many aspects of retirement.
With and FIA, you may also be able to provide income to loved ones after you pass away. Some FIAs offer spousal benefits and optional death benefits as well.
An FIA is an agreement between you and an insurance company. You determine how much of your savings to put in it. Then, the insurance company guarantees to keep your principal, minus some initial costs, safe. After the accumulation period (when your money may be allowed to grow), you may begin to take an income. How much you get and the payment schedule is something determined by the details of the agreement. For example, you may select annual payments or monthly payments. Of course, any tax questions regarding annuity income should be brought to the attention of a qualified tax advisor.
How Annuities Work
Typically, the two phases of an annuity are the accumulation phase and then the distribution phase. Just like it sounds, the accumulation phase allows time for your money to grow and accumulate potential earnings. Once this timeframe is over, you may choose to withdraw money in the form of income. These income payments may happen over the course of the rest of your life. In fact, the insurance company has a claims-paying ability and responsibility to keep your principal safe from loss. And, if your annuity also has a minimum interest rate, they must apply that as well.
An FIA is not invested directly into the stock market. Therefore, there is no risk to your principal balance if the market goes down. However, the FIA is invested into an index, which often mimics the trends in the market. If the index or indexes associated with your FIA go up, you may see some potential indexed interest applied to your account. However, if the index or indexed you have connected with your FIA go down, your principal remains the same. In other words, when the index is up, you may see a reasonable rate of return**. When the index is down, though, your principal is still safe.
More About FIAs
Fixed index annuities are allowed to grow, tax-deferred. Because of the principle of compound interest, your overall annuity may grow. Additionally, you might be able to take a larger income from your annuity than expected.
With an FIA, you’ll need to assign beneficiaries. If you chose a death benefit or a spousal benefit, your beneficiaries will be able to access these funds without probate.
Usually, you can select which index or indexes you want aligned with your fixed index annuity. Also, you’ll need to review details such as the annuity’s cap, participation rates, spreads, and credit method choices. These factors may affect how much potential indexed interest you receive, how the credit gets calculated, and when that money may be credited to your account.
FIAs have other protection benefits available, too. Income rider options create a way for your income payments to increase over time. This can help adjust for inflation or simply increases in costs of living. Optional long-term care rider benefits could create an alternative way to pay for some long-term care needs. Other benefits may be available, as well.
Which Line: Red or Green?
That’s what the “red line” represents. However, some options available in retirement allow you to see an increase when markets are up. Yet, no loss when markets are down. This is represented by the “green line.” FIA’s are one way some retirees protect their retirement savings, no matter what happens in the market.
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Reach out to learn more about annuities, your options, and how to secure a long-term retirement income with protection of principal.