An annuity is a contract issued by an insurance company wherein it agrees to make a series of fixed-amount payments paid at regular intervals to someone for life or for a fixed period. Annuities offer tax deferral during the accumulation phase, flexible payment options, and guaranteed death benefits. Fixed annuities offer a guarantee of principal and interest.
Guaranteed Annuities offer two important features of a sound retirement savings plan-relative security and predictability-with the ability of tax deferral. Your investment earns competitive tax-deferred interest guaranteed by the issuing insurance company. By annuitizing, you may enjoy a lifetime income. There may be a 10% tax penalty for withdrawals before age 59½. Penalties may apply for withdrawals during the surrender period.
Traditional Fixed Annuity
Conservative investors who are more interested in protecting the principal of their investment and receiving a competitive fixed rate of return may be more comfortable with the safety offered by a traditional fixed-dollar annuity. With a deferred fixed annuity, you lock in an interest rate for an initial period, normally one to three years. When the period ends, the insurance company designates a new rate of return for the succeeding period. Most deferred fixed annuities have a minimum guaranteed rate that will be paid regardless of economic conditions.
Total Return (Actively-Managed)
If you are seeking reduced risk but still want the potential for high total return on your investment, you may want to consider a Total Return fixed annuity. These types of annuity products obtain a total return from a flexible combination of current income and capital appreciation, along with the preservation of capital over the long-term using a multi-asset approach. Total Return Annuities maintain a diversified portfolio that includes stocks, bonds and money market instruments. This approach can reduce the risk of loss due to the decline of one portion of the portfolio.
If you believe in the long-term growth of the stock market, but fear it’s short-term volatility, then an Equity Indexed Annuity may be right for you. Equity Index Annuities credit excess interest to your account based on the movements of an external equity index, such as the Standard and Poor’s 500 (S&P 500), S & P Midcap 400, NASDAQ 100, Dow Jones Industrial Average and the Russell 2000 indices. Your principal is guaranteed by the issuing insurance company, while you may benefit from participating in the potential gains of the corresponding index. There may be a 10% tax penalty for withdrawals before age 59½. Penalties may apply for withdrawals during the surrender period.
A Multi-Year Guaranteed Annuity allows you to select from various guarantee periods. Each guarantee period carries a declared rate that is locked in throughout the selected period. The rate your premium will receive depends upon which guarantee period you choose.
If you are looking for the safety and security of a fixed annuity with the upside potential of a Total Return Strategy, then combining a Multi-Year Rate Guarantee Strategy and a Total Return Strategy may be the solution for you.