5 Facts to Know About Annuities
July 28, 2023
When planning for retirement, one crucial consideration is your long-term income sources. An annuity offers you guaranteed, consistent income during your retirement years. Before you decide about the right investment solutions for your retirement, it is crucial to understand the basics of these funds. There are five key facts that you need to know.
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An Annuity Is a Long-Term Commitment
One of the most essential things about annuities is that these funds require a long-term commitment. You can make a lump-sum investment in a Single Premium Annuity and then cannot touch those funds until you draw on the account. Flexible Annuities allow you to make additional premium deposits. Not only that, but you commit to a fixed payment amount for the duration of your payment period, and some annuities stop paying out upon your death. You can find one that continues to pay for a term after death, but your beneficiaries may receive lower payments.
There are also a variety of settlement option choices for payout during retirement, some include: life only, fixed amount, period certain for 5 – 20 years and life income.
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Annuities Can Vary
At its core, an annuity is simple. A Single Premium Annuity is just that, a one lump sum deposit. A Single Premium Immediate Annuity is a lump sum deposit with access to funds typically within one month. A Flexible Deferred Annuity allows you to make additional contributions over time. A Multiple Year Annuity (MYGA) has a guaranteed interest rate for a specific number of years. Each of these annuities can experience the power of compounded tax-deferred interest growth.* A variable fund can fluctuate based on investment performance. You can also consider fixed-index funds or deferred accounts. Consider your comfort level with investment risk, the losses you can reasonably afford, and your future goals as you make your choice.
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Your Annuity May Include Additional Features
The fund itself is simple enough, but there are other features to consider before you make your choice. For example, income riders are available for many funds, including those with significant market risks. Income riders provide features such as a guaranteed growth percentage, locked-in payment amount, or fund value guarantees. These riders may come with an extra fee but can provide you peace of mind for your future income.
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Annuity Costs Vary
As you review different funds, you will see fluctuation in the costs for the funds. Some accounts incorporate the fees within the calculations for your monthly payments, so review the details carefully before choosing the right fund for your long-term investments.
Understand your costs and the factors that determine them. Some companies determine fees based on the amount of your initial investment and the fund structure, with lower expenses associated with higher fund investments. You will face surrender fees for early withdrawals but many annuities offer a 10% withdrawal after the first year.
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Your Annuity Provider Matters
Remember that investment in these funds requires a long-term commitment. Look for a fund provider with a proven history and good annuity rates for return on your investment. Your payout, costs, and financial stability depend on making the right choice; work with an agent that has your best interests in mind.
Before you invest in any retirement funds, consider these facts about annuities and evaluate your options carefully. The fund you choose will provide a consistent source of income after retirement, so consider your financial position and needs before investing. Evaluate your retirement income sources and anticipated costs before choosing the annuity that fits your needs.
*Consult your tax advisor regarding your individual situation.
About 1891 Financial Life
At 1891 Financial Life we don’t just sell policies, we offer possibilities. We pride ourselves on giving back to the communities that we serve by providing quality and comprehensive insurance solutions. We are a not-for-profit life insurance Society, which means the sales from these financial service products help fund member benefits along with social, educational, and volunteer programs designed to respond to community needs. In 2023, 1891 Financial Life was listed by Forbes as one of "The World's Best Life Insurance Companies."
Our portfolio is extensive, ranging from various life insurance policies to our annuities to support your financial needs no matter what stage of life you’re in.