So, why buy an annuity? Because an annuity will do what no other investment does, providing a guaranteed income for the rest of your life. This is the main reason annuities are such a popular retirement planning strategy. They can provide a more tax-sheltered way to save for retirement, especially if you are already contributing the maximum amount to your 401(k) or individual retirement account, because they have no contribution limits. Annuities can also give you the chance to take a more aggressive investing strategy with other assets, because of the guaranteed income you will have later on.
Annuities can be fixed or variable, depending on how contributions are invested and what guarantees are offered. With a fixed annuity, an insurer guarantees to pay a specified rate of interest on the accumulated value of the annuity for a certain period of time. Both the accumulated value and the periodic payments vary with the performance of a specific portfolio of investments chosen by the contract owner. If converted to a stream of income, the payments will be fixed. Generally speaking, a fixed annuity is a more conservative investment. With a variable annuity, the contract owner can avoid inflation but assumes the investment risk. However, variable annuities also have an important insurance component; they offer insurance protection, guaranteed lifetime income options, unlimited contributions and tax-deferred growth potential. These options add certain costs, but may add value to the risk and cost.
There are 2 main types of annuities, immediate and deferred. Immediate annuities will do as the name implies and provide income now, while deferred annuities will provide cash flow later. Within the immediate and deferred annuities are variable and fixed annuities.
Carefully consider the investment objectives, risks, and charges and expenses of the fund or policy and its underlying investment options before investment. This and other important information can be found in the prospectus. Prospectuses are free and available upon request and should be read carefully before investing or sending money. For a current prospectus please contact your financial professional.