Worried about outliving your retirement income? An annuity may be the solution for you.

An annuity is a long-term investment contract between you and an insurance company designed to help you accumulate assets for retirement.

In exchange for your contributions to the annuity, you receive monthly, quarterly, or annual payments on an agreed date or dates in the future.

There are many variables with annuities, which is why it’s recommended that you consult with an experienced insurance agent before taking part in an annuity.

Types of Annuities

Deferred Fixed Annuity

The amount you invest and earnings you receive on your annuity is guaranteed during the surrender period of your contract. 

Depending on the product, premiums may be paid as a lump sum or on a flexible payment plan. At the end of your surrender period, you will have the option to take a lump sum, annuitize, renew, or reinvest in another annuity product.

Deferred Fixed Index Annuity

The earnings you receive are based on the performance of a specified equity-based index (such as the S&P 500). This product provides downside protection assuring that you will not lose money and at the same time provides upside potential based upon the performance of the index and cap of the strategy chosen in your contract. 

Depending on the product, premiums may be paid as a lump sum or on a flexible payment plan. At the end of your surrender period, you will have the option to take a lump sum, annuitize, renew, or reinvest in another annuity product.

Immediate Annuity

This allows you to immediately start taking income after you invest a lump-sum amount into your annuity contract. An immediate annuity gives you a guaranteed income stream for a specific period of time or lifetime, depending on the option you select.

Frequently Asked Questions

Who are annuities best suited for?

Due to the nature of annuities, and the fact that payments are guaranteed for a lifetime or a specified number of years, annuities are a popular choice for folks looking for steady and reliable retirement income. 

Annuities are particularly interesting for soon-to-be retirees who find themselves with less savings than they would like for their imminent retirement.

How does an annuity work?

Essentially, your initial payment toward an annuity is held in escrow, along with a pool of other annuity contributors. 

Your contributions can take the form of several payments over time, or you can pay in one or more lump sums. For instance, if you would like to retire in ten years, you could make monthly, quarterly, or annual payments into an annuity plan during those ten years. 

Then, when you’re ready to retire, you can begin to receive payments from the annuity instead of paying in. You aren’t obligated to start taking the payments at any certain point. 

If you find yourself more flush, you can still retire and delay receiving your annuity payments until such date as you need the annuity income.

How does the insurer make money?

When you contribute to the annuity, the insurance company takes a small fee or percentage of your contribution. The rest is invested on your behalf.

What if I outlive my money?

This is why annuities are so attractive. 

Since this is essentially a form of insurance, you are guaranteed payments for as long as you live or until the pre-agreed term of the annuity runs out. 

If you live a long life, you could end up getting more in payments from the annuity than you paid in.

What if I die before the money runs out?

When you contribute to certain kinds of annuities, your agent will ask you to designate a benefactor, just as you would with a life insurance policy. 

If you’ve chosen an annuity that gives survivor payments, then if for some reason you pass away before you’ve received all the money you’ve paid in, your heirs will receive either a lump sum balance payment or monthly or quarterly payments.

This can be a great financial help if you leave behind a spouse or children who will be responsible for managing your funeral arrangements and estate. 

What will I pay toward the annuity?

The amount of your payments is determined by several factors, including your age, sex, premiums, and the length of time you receive payments.

Are there any tax benefits?

Definitely! You don’t pay taxes right away on the money that you put into your annuity. It grows at a certain rate of interest, without you having to pay tax on that interest income. 

You don’t pay taxes on the income distributions you receive from your annuity all at once, either. Since you only take distributions, you’ll pay taxes only on the distributions that you get, not the whole balance of the annuity.  

There’s an invisible tax benefit, too, because when you are ready to retire and start receiving payments from your annuity, it’s likely that you’ll be in a lower tax bracket, saving you even more money on taxes.

Contact Voldico to Discuss Your Options

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