Understanding the Basics


Understanding The Basics of Annuities

An annuity is an agreement with an insurance company for you to receive payments over a set period. An annuity can allow you to receive a string of guaranteed* payments for the rest of your life. Furthermore, it offers flexibility: You decide whether you want to receive payments monthly, quarterly, or annually. The risks associated with an annuity vary, based on the type it is. Some annuities don’t lose money in the event of a stock market crash, while others are at risk of this. For example, a fixed indexed annuity (FIA) is protected in the event of a market drop. A variable annuity, meanwhile, could lose money in this situation.

Because we believe safety should be your biggest priority, we can help you select an annuity product that provides protection for your money. Additionally, you should look for a reasonable rate of return.** A fixed indexed annuity can provide both of these benefits, and more.

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Fixed Indexed Annuity Basics

An FIA comes with the benefit of keeping your money protected. This is because the money isn’t invested in the market. Instead, you contribute a certain amount of money, and the issuing insurance company holds onto it and keeps it protected. The company agrees to pay you an interest rate based on the performance of an index. Although your money isn’t invested directly, your FIA is linked to a stock market index. This way, you can gain a reasonable rate of return** if the market goes up. However, your money is protected, and you will not suffer a loss if the market goes down.

The insurance company is legally required to protect your principal in the terms of the contract. So, as long as you work with a trusted, reputable company, your future financial stability is guaranteed.* There is also a fixed term and a pre-defined schedule for payments. The details vary based on your individual annuity contract. Reach out to us if you need help further understanding annuity basics.

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Annuity Basics and Taxes

The growth of an annuity product is tax-deferred. This means you only pay taxes on the money in your annuity when you actually withdraw it. In this way, it could be considered superior to other accounts that tax your interest. Additional tax benefits could also be possible.

For example, If you are under age 59 1/2, and you receive a lump sum from a 401(K) you got from a former employer, an FIA may be of use to you. In this situation, if this sum is part of early retirement or severance, you’d have to pay hefty taxes. However, if you “roll over” the money into an annuity instead, you may be able to postpone those taxes. Of course, you should always consult a qualified tax advisor when it comes to topics like this.

Want to learn more about annuities basics? Reach out to us. Schedule a meeting with us, or reserve a spot at one of our no-cost educational seminar events. These events come with a delicious gourmet dinner and a discussion on multiple important topics, including more details on how FIAs work, all at no cost to you.