Elevating Financial IQ: Annuities as a Tool in Financial Literacy Month
April 29, 2024
April marks the observance of Financial Literacy Month, an initiative aimed at promoting the importance of financial education and empowering individuals to make informed decisions about their money. As you celebrate this month, you should recognize the significance of elevating your financial IQ and exploring various tools that can contribute to a secure financial future. By understanding the role of annuities and their potential benefits, you can take a step forward in enhancing your financial knowledge and making well-informed choices for your golden years.
Financial Literacy and Annuities
Financial literacy refers to the ability to understand and effectively manage one's financial resources, encompassing skills such as budgeting, saving, investing, and making informed money decisions.
In today's complex economic landscape, a strong financial literacy foundation is paramount for achieving long-term financial stability and security.
One of the tools that often arises in discussions of financial planning, particularly in the context of retirement, is an annuity. An annuity is a financial product that provides a steady stream of income over a specified period, often during retirement years, in exchange for a lump sum or series of payments made by the individual.
Exploring the Basics of Annuities
Annuities come in various forms, each with unique characteristics and potential benefits:
- Fixed varieties provide a guaranteed fixed rate of return, offering stability and predictability in retirement income.
- Variable options allow individuals to invest their funds in a range of investment options, providing the potential for higher returns but also carrying more risk.*
- Indexed annuities combine features of both fixed and variable varieties, offering a guaranteed minimum return while also providing the opportunity for additional growth based on the performance of a specified market index.*
*1891 Financial Life does not currently offer variable or indexed annuities.
When funding an annuity, you can choose the flexible option, meaning it is funded by a series of payments over time, or single payment option, meaning you make a one-time lump-sum payment.
Funding is also qualified or non-qualified. A tax-qualified annuity is funded with pre-tax dollars, like a 401(k). Distributions from non-qualified annuities are taxed at the time of withdrawal, they are funded with after-tax money.
Annuities can also be classified as immediate or deferred, indicating when you will begin receiving annuity payments. Your personal goals and objectives will help determine the best type of annuity for you.
Advantages of Annuities in Financial Planning
An annuity can play a role in addressing some of the key challenges individuals face when planning for retirement.
One of the primary benefits of an annuity is its ability to provide a guaranteed income stream throughout retirement, helping to ensure that individuals have a reliable source of funds to cover their expenses. This feature can be particularly valuable in mitigating longevity risk, which is the risk of outliving one's savings.
Additionally, many annuities offer tax-deferred growth, allowing individuals to potentially accumulate wealth over time without immediate tax implications. When receiving income from your annuity, various options are available, such as lifetime payments, joint and survivor payments, or payments for a specific term.
Factors to Consider
Understanding the fees, charges, and surrender periods associated with an annuity is essential to make informed decisions and avoid potential pitfalls. Reach out to an 1891 Financial Life insurance producer today, for details about the types of annuities we offer.
By educating oneself about annuities and their role in retirement planning, individuals can enhance their financial IQ and make strides toward achieving financial independence.
About 1891 Financial Life
Our culture is about looking out — for you, for others, for family, for the community. That is how we go “Beyond Life Insurance.”
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.