Understanding Retirement Annuities
In retirement, an annuity guarantees a steady income.
There are various types of annuities, however, our group only works with fixed indexed annuities, for a variety of reasons.
Let’s take a look at fixed index annuities (FIAs). FIAs track the performance of indices, such as the S&P 500. They provide some of the benefits of index funds in the stock market. But, they’re not directly linked to the market. The reason for this is that FIAs are not investments, but they are insurance policies. As an insurance product, they also provide guaranteed income* and rates. Therefore, your principal is protected from loss when the market falls. As a result, you earn a reasonable return** while protecting your retirement.
Phases of Annuities
There are two stages of annuity contracts: accumulation and distribution. During the accumulation phase, you accumulate retirement funds. The distribution phase begins when you retire and begin receiving annuity income.
Comparing Deferred Annuities To IRAs And 401(K)S
Compared to IRAs or 401(k)s, fixed index annuities have greater flexibility.
- FIAs do not have contribution limits.
- You can also roll over certain 401(k)s and IRAs into index annuities.
- Each year, your earnings compound tax-free* with an FIA.
- The money you earn from tax-free* contributions is yours to keep.
What Affects The Potential Interest Rate
Some fixed index annuities have a maximum rate of interest rate. In most cases, this is capped for one or two years. If your selected index exceeds the cap, the index rate will not be applied. In this case, the cap rates will be applied.
In some annuities, a participation rate determines how much of the index increase will be used to calculate your indexed interest. (Participation rates are generally applied after caps, and before a spread.)
However, some annuities use a spread to calculate interest. For example, assume that the index increases by 9% and the annuity spread increases by 4%. As a result, the annuity contract would receive a credit of 5% indexed interest.
Find Out More About Retirement Annuities
If you’re thinking about buying a retirement annuity, be sure it meets your needs. Our team can go over the options and help you decide if a fixed indexed annuity is right for you. Schedule a meeting or attend an informational seminar with a gourmet meal at no charge.