Annuities

                                                                                          There are many types of annuities that can be used to provide income, and most commomly for retirement income.  The basic definition of an annuity is "a contract that provides for a series of payments to the owner or annuitant over a specified period, or for life".

Annuities have evolved over many years from the most basic to the newer and more complex contracts that are more flexible.  The listings below are the most common forms of annuities.  Annuities that provide income for as long as you live could be thought of as a "financial lifesaver".

Immediate Annuities

Immediate annuities are purchased with a lump sum, whereby the income payments to you begin "immediately" (generally in the first twelve months).  These are the oldest and most simplistic form of annuities and are the least flexible.  They, however, certainly may have their place in today's income planning.

Deferred Annuities

A deferred annuity is purchased with either a lump sum or a series of payments. These have an account value that can be applied to provide a payout at a later date.  Federal income tax is usually deferred until amounts are withdrawn, or payments begin (there are exceptions).

Variable Annuities

A variable annuity can either be an immediate or a deferred annuity. The key difference is that the account value can be invested in various investment options.  The account value varies within the investment options and can be used to provide a payout at a later date.  

Indexed Annuities

An indexed annuity is linked to an index such as the S&P 500.  They can offer some protection against the downside of markets and generally limits the upside as well. These annuities usually offer some guaranteed minimum percentage increase.  Investment growth of Indexed Annuities uses one or more stock indices to calculate returns. When investing in an indexed annuity, it is important to understand how the index is being tracked, and how much of the return on the index is being credited to you.  Return on investment of index annuities on the market today can vary widely due to the crediting structure.   This calculation can be complicated and can affect the return on your investment. 

Optional Annuity Benefits

Various companies offer different benefit options. Some of the most popular are:

  • A Guaranteed Living Income Benefit (GMIB, GIB or GWBL) that guarantees a minimum amount of income for life when you apply your Benefit Base to obtain lifetime income (adjusted for withdrawals).
  • A guaranteed death benefit.
  • A "step up" in value after a certain number of years.

Annuity guarantees are based on the claims-paying ability of the issuing company.  Therefore, it is wise always to check a company's industry and credit ratings.

Does this sound confusing? It can be!  Accumulating and arranging income for retirement is not an easy process.  It is important to employ the expertise of a qualified financial professional.  Would your assistance with your retirement income planning?   

Annuities are very complicated. We can help simplify annuities so that you can decide if an annuity is right for your financial future. Contact Jacki Imbrey,CFP®,RICP®, or David Jeffries,CFP®,RICP® and we'll be in touch with you promptly to schedule a convenient time for you to come see us.