By Dan Schulte, Senior Vice President and Manager, Annuities and Insurance
Does the stock market volatility have you worried about meeting your retirement goals? If so, you might wish to seek products that can provide downside protection with upside growth or provide an income stream that cannot be outlived. Fixed annuities are contracts issued by insurance companies that will provide accumulation and/or income to a policy owner in exchange for a lump sum premium.
Various types of fixed annuities in the marketplace include:
Single Premium Immediate Annuities: Typically, these types of fixed annuities start paying income immediately (within one year) after the premium is received. These annuities can be structured to provide lifetime income guarantees* for you (and your spouse, if applicable) regardless of how long you live. The amount of the income guaranteed by the contract will vary by company and is largely based on the life expectancy of the annuitant(s). The products can also be designed to provide income for a certain number of years instead of a lifetime.
Deferred Income Annuities: These annuities can structure income payouts that are similar to a single premium immediate annuity except that they are designed to begin to pay out income at some point in the future (at least one year after the initial premium is paid). The older you are when income begins, and the longer you defer taking income, the higher the guaranteed income stream the insurance company will pay to the policyowner.
Fixed Interest Annuities: These types of annuities pay a guaranteed amount of interest over a specific period of time. A fixed annuity yields returns similar to a bond or other lower-interest investment. The contract also accumulates tax-deferred until income is taken from the product. Fixed annuities can also provide a guaranteed lifetime income stream to the policy owner.
Fixed Indexed Annuities: Like a fixed interest annuity, a fixed indexed annuity provides safety of principal with tax-deferred growth. What makes a fixed indexed annuity different than a fixed-rate annuity is that the policy owner has the option to allocate funds to indexed-based accounts that will pay interest based on the change in the price of a market index. If the selected index has positive growth for the time period selected, the annuity will credit returns subject to an interest-rate cap or spread. This means returns will be less than the return of the specified index. If the index is negative for the period, most contracts offer an interest rate floor of 0%, so the contract will not lose value These contracts can also be designed to provide a guaranteed lifetime income stream to the policy owner.
Annuities are long-term investments and will often have withdrawal charges, as well as other fees and expenses. Because of the complexity of annuities, you should understand the features, risks and costs prior to making a purchase. Your financial advisor can help you analyze your situation and discuss various option to consider as a complement to your portfolio.
*Note: All annuity guarantees are subject to the claims-paying ability of the issuing company.
IMPORTANT DISCLOSURES: The information provided is based on internal and external sources that are considered reliable; however, the accuracy of this information is not guaranteed. This piece is intended to provide accurate information regarding the subject matter discussed. It is made available with the understanding that Benjamin F. Edwards & Co. is not engaged in rendering legal, accounting or tax preparation services. Specific questions on taxes or legal matters as they relate to your individual situation should be directed to your tax or legal professional.