Learning Center

Before you make the decision to add an annuity to your portfolio, learn the basics.

What is an Annuity?

An annuity is a contract between you and an insurance company.  Generally, the agreement in the contract is for you to make a lump-sum payment or a series of payments and, in return, you will receive regular distributions beginning immediately or at some point in the future.  The goal is to provide a steady income, typically for retirement.  As such, they grow tax-deferred much like a 401(k). 

Annuity contracts come in many different shapes and sizes.  Although guaranteed income was the original goa, they have since evolved to fit many different financial objectives, including safe, predictable growth, long term care planning, and legacy planning for beneficiaries.

Should I Buy an Annuity?

If you want a contractual guarantee, then yes.  You should buy an annuity.

Annuities are a Contract, and should only be used as such.  

• If you want principle protection contractually guaranteed, then YES, you should buy an annuity. 

• If you want an income stream contractually guaranteed for any period of time including for life, then YES, you should buy an annuity.    

• If you want your legacy contractually guaranteed to passed on to loved ones, or to an organization important to you, then YES, you should buy, or at least consider an annuity. 

• If you want Long Term Care Benefits Contractually Guaranteed to take care of you, but you don’t want to buy an expensive, stand-alone policy, then YES, you should buy, or at least consider an annuity. 

What Types of Annuities Can I Buy?

I like to compare annuities to automobiles when I explain the many different types of annuities available.  Just like your car, annuities are a very personal vehicle designed to fulfill a goal.  Just like shopping for a car, you will find that there is every size and shape of annuity you can think of, and more.  There are a lot of companies offering multiple annuities.  Many of them offer multiple additional options.  It can start to get very confusing.    

To make it simple, it all comes down to your intention.  It’s your money.  What do you want to do with it?  Or… what do you want that money to do for you?  In addition to paying lifetime income starting immediately (SPIA) or at some point in the future (DIA), There are other solutions offering short term (MYGA) and long term accumulation options.  This allows you to accumulate interest with principle protection (FIA)or invest in a separate account to achieve market exposure and opportunity (VA).

What you want and need from your money determines what kind of annuity is best for you. You’re the boss! 

What is a Fixed Annuity?

A FIXED ANNUITY pays a “fixed” amount of interest guaranteed for a set period of time.  Some offer a renewable rate each year depending on current interest rates. Others offer a MULTI-YEAR GUARANTEE (MYGA), allowing you to lock in the interest rate for a set number of years, much like a CD, but generally with slightly higher interest rates. 

What is a Fixed Index Annuity?

A Fixed Index Annuity (FIA) falls somewhere between a Variable Annuity, and a Fixed Annuity.  Instead of having a declared rate of return, the interest returns are dependent on a market index (S&P 500 for example).  These solutions typically offer principle protection, and allow participation in positive index returns.  Fixed Index Annuities are best considered for long-term investing, as well as offering unique retirement solutions including lifetime income, and enhanced Long Term Care benefits. 

 With the continued decline in interest rates, and as low as they are right now, these solutions have also become a Fixed income alternative to Bonds and Bond Funds.     

What is a Variable Annuity?

A variable annuity offers potentially higher returns than a Fixed Annuity, but with better opportunity comes greater risk. VA’s allow you to choose from a menu of mutual funds. Those mutual funds go into a separate account (sub-account). In these products, the performance of your account, or the amount of your annuity payment is subject to the performance of the investments in your sub-account. 

What is a Rider?

A Rider is an amendment, or additional benefit that changes the terms of an insurance policy.  Because of the additional benefit, Riders typically come at an additional cost.  It is important to understand the benefits included in the rider, and what those costs are.  Many people pay for riders they never use, and that can be very expensive.    

In the Annuity arena, Riders are mainly used for enhanced guaranteed income (Lifetime Income Benefit Riders), or increased liquidity (such as Return of Premium or Waiver of Surrender Charges).  Long-Term Care Riders are also common.