Annuities

Annuities are popular vehicles for funding retirement accounts. An annuity is an insurance product primarily intended to provide consumers with guaranteed retirement income that lasts as long as they want – even the rest of their life – so they can make the most of their well-deserved retirement years. However, there are several options. Some annuities can offer more growth potential by delaying the shift into a guaranteed fixed income stream, providing steady income later in retirement. Others can offer more protection from market losses or help accumulate wide-ranging assets to provide multiple options for retirement income. Some annuities may even be optimized to help pay for Long-Term Care, one of the retirement community’s most significant concerns currently surging throughout the United States.

Purchasing an Annuity is commonly funded with a lump sum or a series of payments starting the disbursements almost immediately or at some point in the future. An annuity transfers the risk of someone outliving their savings to the insurance company. Since annuity contracts protect from market risk and longevity risk, essentially transferring all the risk down-market to the insurance company from the annuity owner, the insurance companies charge fees in the funding exchange. In addition, most annuity contracts include surrender periods during which the contract holder cannot withdraw money from the annuity without incurring a surrender charge.

The objective of an Annuity is to optimize for retirement income or long-term growth; it is not a short-term investment strategy. These products should only appeal to people whose main objective is long-term financial security, retirement income, diversification, and principal preservation. An annuity is a customizable contract for when and how the conversion of an investor’s premiums or lump sum payment will shift into a guaranteed fixed income stream. Hence, the type of annuity a person purchases determines future annuity payments.