What are Annuities Anyway?
In a nutshell, annuities provide lifetime income you cannot outlive. Annuities are designed to help you grow your retirement income. They’re long-term contracts from an insurance company. You invest your money in an annuity and in return for your investment, you get income in the form of regular payments.
Types of annuities
Annuities come in all shapes and sizes depending on how you plan to use them. They can have income options, legacy planning tools or spousal protection, and more. At My Legacy Group we work with you to determine the annuity most in line with your retirement needs and goals.
There are five basic types of annuities.
Variable Annuities are basically an investment account with an insurance wrapper. They offer a wide range of investment choices that offer different levels of risk and growth potential. However, with the potential for more earnings, comes the potential for more risk so this type of annuity is not for everyone.
With a Fixed Annuity your investment grows at a guaranteed rate of return. So, if you have a Fixed Annuity with a guaranteed rate of return of 6%, that means each year your investment will increase by 6%. Fixed Annuities offer guaranteed income and growth potential, as well as tax-deferral and death benefits for your beneficiaries.
Immediate Annuities allow you to convert a lump sum of money, say from the sale of a house or an inheritance, into a stream of income. An immediate annuity can provide you with predictable income during retirement that you can use for essential living expenses. With an immediate annuity, you can provide guaranteed income for life or a set period of time. You can begin taking income immediately or defer your payments for up to a year.
Fixed Indexed Annuities
Fixed Indexed Annuities offer the potential for increased earnings based on the growth of the index the annuity tracks while also providing downside protection. These annuities also offer tax-deferral and death benefits for your beneficiaries.
Registered Index-Linked Annuities
These types of annuities limit your vulnerability to downside risk while offering the potential for increased earnings because, like many ETFs, they follow a specific index. For example, a Registered Index-Linked Annuity may follow the S&P 500 that means it would contain all the holding in that index and its performance would mirror the index.
Things are changing all the time and there are new factors we need to consider when it comes to our retirement and our finances. Let’s face it, people are living longer because we have more knowledge and are taking better care of ourselves, eating better, exercising, and receiving better healthcare. This is great but of course there is always a flipside, and that flipside is longevity risk.
Essentially longevity risk is the risk of outliving your retirement funds. Retirement research has shown ample evidence, based on mathematical, scientific and actuarial studies, that addressing longevity risk is a crucial step in retirement distribution planning. This is because longevity risk comes with a multiplier effect that enhances four other sub-risks and thus for this reason, longevity risk needs to be addressed head on.
Annuities are the only product out there that provides longevity credits. This means that the insurance company manages the portion of your retirement assets that needs to have guaranteed income for the rest of your life. They are also a great way to supplement your Social Security Benefits and let you sleep at night anxiety-free.
There are literally thousands of annuities on the market today. People sometimes have a bad feeling about annuities, in reality there is nothing to love or hate about them. The key is to understand which benefits you are getting with the annuity you chose, and that is what My Legacy Group helps you do.
We use annuities with our clients in a very deliberate and intentional manner and to solve for a very specific need or issue. Here are the main reasons we use annuities with our clients where appropriate.
- Principal protection
- Growth potential
- Uninterrupted lifetime income
- The possibility of tax-free income for life when planned properly
Annuity Guarantee Disclosure:
Any comments regarding safe and secure products, and guaranteed income streams refer only to fixed insurance products. They do not refer, in any way to securities or investment advisory products. Fixed Insurance and Annuity product guarantees are subject to the claims‐paying ability of the issuing company and are not offered by Brookstone.
Fixed Index Annuity Disclosure:
Index or fixed annuities are not designed for short term investments and may be subject to caps, restrictions, fees and surrender charges as described in the annuity contract. Guarantees are backed by the financial strength and claims paying ability of the issuer. Please refer to our firm brochure, the ADV 2A Item 4, for additional information.