ANNUITIES

Annuities

Annuities, when suitable, can be an integral part of your retirement plan. Depending on your goals and personal situation the following types of annuities may be a consideration:

These are fixed interest investments issued by insurance companies. They pay guaranteed rates of interest, typically higher than bank CDs, and you can defer income or draw income immediately. These are popular among retirees and pre-retirees who want a no-cost, modest and guaranteed fixed investment.
These allow investors to choose from a basket of sub-accounts (mutual funds). Account value is determined by the performance of the sub-accounts, and a rider can be purchased to lock in a guaranteed income stream regardless of market performance — a key hedge if sub-accounts perform poorly. These are popular among retirees and pre-retirees who want a shot at capital appreciation in tandem with guaranteed lifetime income.
These are basically a mirror image of a life insurance policy. Instead of paying regular premiums to an insurer that makes a lump-sum payment upon death, the investor gives the insurer a lump sum in return for regular income payments until death, or for a specified period of time, typically starting one to 12 months after receipt of the investment. Payments are typically higher than other annuities because they include principal, as well as interest, and so also offer favorable tax treatment. These are popular among retirees and pre-retirees who need a higher-than-average stream of income and are comfortable sacrificing principal in exchange for higher lifelong income.
These are basically a mirror image of a life insurance policy. Instead of paying regular premiums to an insurer that makes a lump-sum payment upon death, the investor gives the insurer a lump sum in return for regular income payments until death, or for a specified period of time, typically starting one to 12 months after receipt of the investment. Payments are typically higher than other annuities because they include principal, as well as interest, and so also offer favorable tax treatment. These are popular among retirees and pre-retirees who need a higher-than-average stream of income and are comfortable sacrificing principal in exchange for higher lifelong income.
These delay payments until a future date (greater than one year). They enable people to increase their income stream later in life for less money because the insurance company is not on the hook as long when income payments are deferred. These appeal to people who want guaranteed income in the future, not now, or who want to create a ladder of income over different periods later in life. For example, they may want to work in retirement but know that eventually they will stop working and, at that point, and not before, will need guaranteed income from an annuity.

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