An annuity is a contract between you and an insurance company that requires you to pay a fee to them in return for regular disbursements. They are meant, then, to provide a steady flow of income to individuals after retirement.
There are five main types of annuities for you to choose from. The first and one of the most common is referred to as a fixed annuity. Like all annuities, this option helps you put money towards your retirement for a stable income. They function by you putting money towards it at once or over time, choosing a time frame consistent with your needs, and deciding how you will take money out of it—a great, straight-forward option for retirees.
Fixed Indexed and Variable Annuities
Fixed indexed annuities, on the other hand, work a bit differently. You must first choose an “index offering,” an area of investment to put your money towards, such as the S&P 500. Then, depending on the annuity plan you choose, you will have the choice between multiple living and death benefits. One of the main benefits of this plan is that, even if your investment is doing poorly, you are protected from negative returns.
Variable annuities do not offer this same protection. It provides a much higher potential reward but at a much higher risk of loss or stopping of cash flow.
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Registered Index-Linked and Immediate Annuities
Registered index-linked annuities function similarly to fixed indexed and variable annuities while still falling somewhere in between. It offers more growth potential than a fixed-indexed annuity but simultaneously less potential return and less risk than a variable annuity.
The final option is the immediate annuity. This is a very direct option to receive some monetary benefits. All you have to do is put the desired amount towards it, and you may take it out whenever you decide you need it. There are multiple tax benefits for doing this plan with essentially no risk.
Can't Decide if an Annuity is Right For You?
Are you retired or preparing for retirement? You’ve come to the right place. World Financial Solutions has the insurance and finance expertise you need to feel confident in your decision. When you’re ready to get started with a free consultation, give us a call at 281-639-7787.