What are Annuities?
An annuity is an insurance contract between you and your insurance provide. In return for the money you pay the insurance company (either in lump sum or in installments), the company promises to pay you a fixed amount every month either immediately or at a later time..
The need for annuities is higher than ever. If you take a look at the main sources of retirement income for many families, they generally rely on Social Security and/or company pensions. However, people are realizing that a lot of the time Social Security is not providing us the amount needed to sustain the life style we are used to. Especially now that people are living longer and longer than before, Social Security benefits are continuing to get paid out to individuals for a longer period of time lessening the funds available for those who are heading into retirement in years to come. Adding to that, fewer employers are providing pension benefits like before leading to a big financial gap for numerous families.
Annuities give families the peace of mind where they can receive life time income during their retirement stage to supplement Social Security, pensions and any other retirement fund sources. You even have annuity options that can pay your spouse or another dependent after your death.
Fixed Annuities are a simple form of annuities where many may be used to. These annuities provide both fixed returns and retirement payout.
Index annuities allow you to have tax-deferred growth on your contributions where the returns are based off of equity indexes. Going this route, you get the opportunity to perform along with the ups of the market (maybe not all) but not with any of the downs of the market no matter how low it may go. This is where your principle and interest guarantees with minimum interest rates. Many prefer index annuities because they generally provide higher returns over time than fixed annuities while not having to have their funds exposed to any market risk compared to mutual funds and variable annuities where you witness volatility and potential loss of principle.
Index annuity owners also get the option to get different benefits such as annuitization, death benefits that may be paid outside of probate, tax deferral and riders that you can consider to be extra benefits if needed.