What are Annuities?

What are annuities and how do they work?

An annuity is an insurance or annuity contract that is sold by insurance companies that grows on a tax-deferred basis and it can create an income stream that you cannot outlive. Annuities are very popular for people who want a steady stream of income now or in the future.

Annuity Benefits

•

Asset Protection - Can be used as an

Asset Protection Tool

• Lifetime Annuity - You can choose an income you cannot outlive

• Tax-Deferral- You do not pay taxes on the growth off your money

• Guarantees- Some annuities guarantee your principal

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Types of Annuities

There are three main types of annuities.

1. Fixed Annuities

2. Index Annuities

3. Variable Annuities

Fixed Annuities are similar to a Certificate of Deposit. You receive a fixed percentage for a fixed period time. Fixed annuities are often times referred to as

CD Annuities .

Indexed Annuities are similar to fixed annuities in that you will receive a minimum guarantee in addition to participating in the some of the index gains but with none of the losses.

Variable Annuities allow you to choose from many subaccounts like a mutual fund and a guarantee account. These annuities are securities and are subject to market fluctuations and losses.

When considering buying an annuity, it is best to seek advice from an experienced annuity insurance agent. There are many agents who can help find the best annuity for your situation. A qualified agent will be able to shop and compare annuities and he will be able to supply you with proper

annuity information.

When you start planning to purchase an annuity, you should always check the ratings ratings of the insurance company you will be placing your money with. I know it sounds simple, but most people just “trust” their agent. You should always place your money with at least an “A” rated insurance carrier.

There are basically two ways to fund an annuity. You can purchase an annuity by simply writing a check made payable to the insurance company or the most popular form of funding an annuity, is by rolling money from another investment or savings vehicle. For example, you can roll money from a 401k account or IRA to an annuity. With single payment annuities , you roll your value into a new annuity contract.

You give or roll over money/premium to an insurance company. If you purchase a deferred annuity , the money will continue to grow tax deferred. If you are purchasing an immediate or income annuity , the insurance company will begin making payments to you immediately. Distributions from an annuity can be monthly, quarterly, and annually.

The size of the payment you receive are determined by a few factors.

1. Your age when you take the payments. The older you are the more money you will receive.

2. Length of payment. If you opt for lifetime your payments will be lower due to the company being on the hook for the rest of your life verses a payment for 10 years only.

3. The interest rate environment. A lower interest rate environment at the time you buy the annuity will determine your rate now even if you start to take an income 10 months from the day you bought it. It works both ways and you can purchase cost of living increases.

"One of eight wonders of the world: tax-deferred compound interest" Albert Einstein

Interest

Interest on your Interest

Interest on money that you would have paid in taxes.

Additional Features

Premium Bonus of 5% to 10% guaranteed

Long Term Care Benefits

Lifetime Income

Annual minimum guarantees

Guarantees against loss and risk

Estate Planning (Probate Avoidance)

After reading this webpage and reviewing the rest of this site, you should have a better understanding of what are annuities, types, and benefits associated with annuities. If someone were to say, what are annuities? You will at least know the basics of what they are and how they work.

Annuities can be very good retirement planning tools and should be considered in your overall portfolio. You should research the health and ratings of the carrier you go with as well as the length of years that fits your needs.

More on What Are Annuities

• Understanding Annuities
• Annuity Buyer
• Deferred Gift Annuity
• Best Annuities
• Annuities Pros And Cons

• Annuities Explained

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