Annuities—What You Need To Know
What is an annuity? An annuity is a retirement product that provides income for those that need it.
There are 4 types of annuities:
- Single Premium Immediate Annuity—designed to distribute income over a specific period of time or for one’s life. For those that desire income, this is the best hidden secret out there. There is no risk, it is guaranteed to pay out that income via a contractual agreement and it is ensured by that particular state that that individual lives in. It’s not an investment; it’s a strategy to pay out income.
- Single (Flexible) Premium Deferred Annuity—we could add money to this annuity. Again, this is not an investment, it’s a saving’s vehicle. We don’t pay any tax along the way. Normally, they pay 1-2% more than a CD would, very safe and insured by the state that the person lives in. The principal is safe and guaranteed, as well as the interest earned, too.
- Fixed Indexed Annuity-gives us the safety of principal, gives us the guaranteed interest of a minimum, however, the future growth is linked to the stock market. It is linked to the S&P 500 or the Nasdaq.
- Variable Annuity—totally different than the above other 3. It’s an investment, the money is linked to mutual funds and there are no guarantees. And there are a lot of charges involved.
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