Understand annuities in plain English - no finance degree required
Think of an annuity as a retirement paycheck creator. You give money to an insurance company, and they promise to pay you back with interest - either all at once or in regular payments for life.
Annuities work in two simple phases. First, you put money in (accumulation). Then, the insurance company pays you back with interest (distribution). It's that simple.
Make a lump sum payment or series of payments to an insurance company.
Accumulation phase: Your money grows tax-deferred based on the annuity type.
Distribution phase: Get regular payments for a set period or for life.
Never worry about outliving your savings with lifetime income options.
Like a CD at a bank, but with insurance company. Guaranteed rate of return, completely safe.
Your money is invested in mutual funds. Can grow more but also has risk. Not for everyone.
Linked to stock market index. Gain when market goes up, protected when it goes down.
Start receiving income right away. Good for retirees who need income now.
Depends on the type. Fixed and indexed annuities protect your principal. Variable annuities can lose value if investments decline.
You choose! Could be immediately (immediate annuity) or years from now (deferred annuity). Most people start income at retirement.
Most annuities allow some withdrawals (usually 10% per year) without penalties. Full surrender may have charges in early years.
Depends on your contract. Many annuities have death benefits that pay your beneficiaries. Some guarantee payments for a certain period.
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