Retirement Annuities protect against the risk of you out living your wealth. Annuities are a way of supplying a stream of income for a guaranteed amount of time. The monthly payout amount of an annuity is determined based on the payout option chosen when you first set up the annuity. When you contribute to an annuity as a lump sum the insurance company takes a fee of your initial contribution and most of your annuity contribution is then invested by the insurance company.
So, what are the benefits of an annuity?
There are several benefits to an annuity, the money is invested on your behalf by the insurance company to your benefit. The value of your annuity grows based on the performance of an equity-based index (S&P 500) with downside protection. This ensures that the value amount of your annuity grows over time to be paid out monthly to you later at the agreed upon date in the case of a deferred annuity. The structure and design of the annuity can differ depending on your age and financial situation. Most annuity contracts have a stated monthly payout amount for every $1,000 your annuity is worth when you decide to start receiving income. An example of a straight life income payout would be for every $1,000 will you receive $7.00 in monthly income for the remainder of your life. If your annuity ends up being worth $100,000 when you start to receive monthly payments you will receive $700 a month for the remainder of your life.
Deferred Annuity | A deferred annuity will start supplying income after the first year. |
Immediate Annuity | An immediate annuity will start supplying income payments within the first year and its purpose is to support the liquidation of a principal sum over time. |
Each annuity is unique based on the payout option and investment configuration chosen let's take a look at a brief overview.
There are two types of investment configurations: 1.) fixed annuities which supply a guaranteed rate of return and 2.) variable annuities which do not guarantee a rate of return and the cash value is based on the returns of the investment funds invested in.
There are several types of payout options let us look at a couple different options: 1.) A straight life income payout option pays the annuitant a guaranteed income for the annuitant’s lifetime. This offers protection against the depletion of your savings due to the longevity of your life. When you die, no further payments are made to anyone. 2.) A fixed amount option pays a fixed payment until the contract value is depleted. If you die before the contract is depleted the remaining funds are paid to your beneficiary for the rest of the contract. 3.) A joint and full survivor payout pays out the annuity to two or more people until the last annuitant dies. If one annuitant dies the remaining annuitant will receive payouts on a same payout basis, a two-thirds payout basis, or one-half payout basis depending on how the annuity was written. 4.) A life with period certain payout option is designed to pay the annuitant guaranteed payouts for the life of the annuitant but for at least a minimum amount of time for the beneficiary. Regardless of when the annuitant dies the beneficiary will receive the benefit payments for a minimum number of years.
As you can see, due to the complexity of annuity contracts it may be in your best interest to speak with a licensed independent agent to help assess your needs and find you the best possible annuity contract for your situation.
Insurance terms, definitions and explanations are intended for informational purposes only and do not in any way replace or modify the definitions and information contained in individual insurance contracts, policies or declaration pages, which are controlling. Such terms and availability may vary by state and exclusions may apply.