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Annuities In a Nutshell
Annuities
are contracts offered only by insurance
companies which
allow you to save and grow funds, most
commonly, for retirement or income on a
tax-deferred basis and then, if
you choose, you can receive
a guaranteed income payable either for
life or for a certain period of time.
There are
three different types of annuities:
Fixed Annuities
Variable Annuities, and
Indexed Annuities.
Fixed Annuities
are safe, no risk investments that offer
a current interest rate and a lifetime
minimum guaranteed interest rate. So,
your principle
is always fully
protected. Current interest rates could
be guaranteed for a period of time as
declared by the insurance company, but
it could never
go below the Minimum
Guaranteed Interest Rate. Fixed
Annuities are
time-tested, easy to own
and understand with no risk whatsoever
and
tax deferred.
If you are older or closer to
retirement, fixed annuity may be the
best
choice for you.
Variable
Annuities
allow you
to invest your money in a wide range of
mutual fund accounts tax deferred, mostly from
multiple mutual fund companies. Variable
annuities do not have guaranteed rate of
return. Your gain is
fully linked to and based on how the
selected mutual fund accounts
perform. Even though, they are subject
to market risk that could include
risk of principle, in the long run,
mutual funds are tested, tried and
historically proven to outperform fixed
annuities by a great margin. As a
result, more often than not, Variable
Annuities perform well under various
market conditions for long-term
investment and retirement planning.
If you are in a younger age and looking
for retirement income or
long-term growth, Variable Annuities
could be an excellent choice for
you to start.
Index Annuities
With Indexed Annuities, your
gains are
tax deferred and linked to the selected
performance index (most
commonly,
S&P/500
Index) of the stock market-with 100%
downside protection. If the market does
well, you do well. If the market
performs poorly, you’ll have the
piece of mind knowing that you’re
guaranteed to
earn no less than the
contract’s minimum guaranteed
interest rate. In
other word, you
participate in the growth of the market
without losing a dime of your principle.
Upside potential linked to stock market.
Downside potential similar to Fixed Annuities or
CD’s. |
