What is an Annuity?
An Annuity in its simplest form is a product issued by an insurance company that can accumulate interest or can provide a guaranteed income. Annuities are a popular choice for investors who want the money safe and guaranteed, or also want to receive a steady stream of income.
There are several types of Annuities and they all are structured differently. A few common types are:
Fixed Annuities, this type provides a fixed rate for a fixed period of time similar to a certificate of deposit issued from a bank.
Variable Annuity, the performance of this type of annuity is tied to the performance of the selected company mutual funds, referred to as a sub account in a variable annuity. Common complaints of variable annuities are that they don’t provide guaranties of the growth and have high fees attached to the account.
Fixed Index Annuity, the newest type of annuity is the Fixed Index Annuity or sometimes referred to as the hybrid annuity. This type offers a fixed rate and the option to tie the accumulation to a stock market index such as the S & P 500 and also provide guarantees. Basically, the hybrid takes the best features of both types of products above and puts them into one.
Is an Annuity Right for Me?
With bank CD rates so low these days we get asked this question several times a week. With the many different types and all the features available on annuities, the only real answer is; we would need to know more about you and your situation. What we can do is show some examples of situations that we see every day that might help to determine if an annuity is right for you. At Sun Cities Financial Group we primarily focus on Fixed Index Annuities:
#1 If you have worked hard all your life and have accumulated assets for retirement either in IRA, 401K, etc or other funds you want to use for your retirement. Now you need to generate an income to provide for the rest of your retirement years.
#2 You are tired of the ups and downs of the market or the stress of wondering when the market is going to have a dramatic decrease, causing a loss of your portfolio. You want a more stable return with safety but the current CD options are too low, in other words a safer alternative to the stock market with principal protection.
#3 You have been a loyal CD investor for most of your investment life and are frustrated with the yields available on CD’s. You want an alternative that provides safety and principle protection with a reasonable rate of return.
The major benefit of a Fixed Index Annuity is that the interest credited is from benefiting from the stock market gains but protected against market losses. The earnings are tax deferred if left to accumulate in the annuity. If an income is needed it can provide a lifetime guaranteed income to you and your beneficiaries. The account also allows for withdrawals if you have a need for additional money, have a financial emergency or have severe medical issues you have access to a portion of the principal and may even allow for a full withdrawal.
For these reasons Fixed Index Annuities are the fastest growing accounts for accumulation and/or income with billions invested every year.
To find out if a Fixed Index Annuity is right for you contact your local Sun Cities Financial Group office.