What is an Annuity?
Annuities, also known as retirement income contracts, are financial products offered by insurance companies that allow individuals to convert their savings into a steady stream of income — often used to supplement retirement income.
These plans are typically designed with different payout options and contract features that determine how and when you receive your income. Depending on the type of annuity, you may have options for guaranteed lifetime income, growth potential, or protection against market loss.
Some annuities may also offer additional benefits such as death benefits or long-term care riders at no additional cost or for an added fee.
So let’s take a closer look at Annuity Plans.
Annuity Upside?
Guaranteed income for life: Provides a reliable, steady income stream during retirement — no matter how long you live.
Tax-deferred growth: Earnings grow without being taxed until you start taking withdrawals.
Protection from market losses: Fixed and indexed annuities can protect your principal even if the market declines.
Customizable payout options: Choose income for a set period, for life, or joint life with a spouse.
Optional benefits: Riders can add features like long-term care coverage or death benefits.
Peace of mind: Removes the worry of outliving your savings by converting assets into guaranteed income.
Annuity Downside
Limited liquidity: Access to your money can be restricted — early withdrawals may come with penalties or surrender charges.
Fees and costs: Some annuities have management fees, rider fees, or surrender charges that can reduce returns.
Complexity: Terms and conditions can be difficult to understand without guidance.
Potential lower returns: Fixed annuities may earn less than investments directly tied to the stock market.
Taxed as ordinary income: Withdrawals are taxed at regular income rates, not capital gains rates.
Inflation risk: Fixed payments may lose purchasing power over time if inflation rises.
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