Annuities offer a unique and attractive blend of safety, growth potential, tax advantages, lifetime income, and liquidity. The top priority for most people when they are saving their money, without question, is safety.
By contract, a fixed annuity guarantees that your principal is protected and that you can get it back again, as long as you avoid any penalties for early withdrawal. Once people are satisfied that their money is safe, the next objective is to have that money grow as fast as possible. The annuity industry invented index annuities precisely so that they could offer even better rates of interest under certain conditions. People want their money to grow as fast as possible, and besides having a high rate of growth, having some sort of tax advantage helps to accomplish that goal.
Some people buy annuities for their tax deferral. Annuities typically offer a variety of options to pay the value of the contract out over time as a guaranteed periodic amount of income. Payment options often include income that is guaranteed to continue for the rest of your life, no matter how long you live.
Most people recognize that liquidity, safety, and growth do not co-exist very well, so if an annuity is going to give you guarantees of safety and the potential for a good rate of growth, there needs to be some sacrifice in liquidity. The good news is that most annuity products build in enough liquidity options to make many customers comfortable.
Types of annuities
These investment contracts pay a fixed interest, typically higher than a bank CD. Contract owners are able to defer income or draw immediately depending on the contract. These types of annuities are popular for those looking for a modest growth with a guaranteed rate of return.
Fixed Indexed Annuity
Life fixed annuities, these contracts are have the added benefit of variable rate of return based on a market index. There is typical an offer of guarantee minimum income, and a potential for upside growth while the contact is accumulating interest.
This type of contact is used for those looking for an immediate stream of income. Just like its name, owners of this type of annuity can begin growing an income within one month up to 12 months after the initial premium payment is made. Payments on these contracts can be for a specified time period or until death. These annuties are popular among those looking for a guaranteed income.
These contracts offer the same features as an immediate annuity however the payments are typically delayed for over 12 months after the original contract date. This will allow for the income value to grow before an income is received from this contract.