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Introduction to Annuities

Introduction to Annuities

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Introduction to Annuities

Annuities Basics

What Is An Annuity?

An annuity is a financial product sold by an insurance company. It is designed to provide regular income, often during retirement.You put money into an annuity. In return, the insurance company agrees to pay you income either right away or later. Many people use annuities to help make sure they don’t outlive their savings.Think of an annuity as a way to turn savings into a steady paycheck.

How Do Annuities Work?

Annuities usually have two main stages:1. Saving Stage (Accumulation)This is when you add money to the annuity. You can invest:
  • A lump sum, or
  • Payments over time
Your money may grow during this stage. In many cases, taxes on growth are deferred, meaning you don't pay taxes until you take money out.2. Income Stage (Payout)This is when the annuity starts paying you income. You choose:
  • When payments start
  • How long payments last
  • How often you get paid (monthly, quarterly, or yearly)

Key Benefits of Annuities

Annuities offer features many people like for retirement planning:
  • Guaranteed income options that can last for life
  • Tax-deferred growth while saving
  • Flexible payout choices
  • Protection from market losses (for some annuity types)
All guarantees depend on the financial strength of the insurance company.

Common Types of Annuities

Fixed AnnuitiesFixed annuities offer:
  • Predictable growth
  • Stable income
  • Little to no market risk
These are often chosen by people who want simplicity and safety.Indexed AnnuitiesIndexed annuities:
  • Earn interest linked to a market index (like the S&P 500)
  • Have limits on gains
  • Protect your money from market losses
They offer a balance between growth potential and protection.Variable AnnuitiesVariable annuities:
  • Invest in market-based funds
  • Can grow faster, but can also lose value
  • Often include higher fees
These are usually better for people comfortable with market risk.Immediate vs. Deferred Annuities
  • Immediate annuities start paying income soon after purchase
  • Deferred annuities let your money grow before income begins
Both can be used to support retirement income.

Annuity Payout Options

When income starts, you choose how payments are made.Lifetime IncomePays you income for as long as you live, even if you live longer than expected.Period CertainPays income for a set number of years (such as 10 or 20). If you pass away early, remaining payments go to a beneficiary.Life with Period CertainProvides lifetime income with a guaranteed minimum payout period for beneficiaries.Joint and SurvivorPays income for two people, usually spouses, for as long as one is alive.

Important Things to Know Before Buying an Annuity

Before purchasing an annuity, consumers should understand:
  • Fees and costs — some annuities are more expensive than others
  • Surrender periods — withdrawing money early may cause penalties
  • Taxes — withdrawals may be taxable
  • Long-term focus — annuities are not meant for short-term savings
Reading the contract and understanding your options is important.

Who Might Consider an Annuity?

An annuity may be a good fit if you:
  • Want steady retirement income
  • Worry about outliving your savings
  • Want to supplement Social Security or a pension
  • Prefer insurance guarantees over market ups and downs
Annuities are often used as part of a larger retirement plan.

The Bottom Line

Annuities are insurance products that can provide reliable income, often for retirement. They come in many types, with different risks, benefits, and payout options.Understanding how annuities work can help you decide if one fits your financial goals and income needs.

How to Apply for an Annuity With One of Our Advisors

Choosing the right annuity can feel overwhelming, but you don't have to do it alone. Our licensed agents and advisors are here to help you understand your options and guide you through the application process.

What to Expect When You Apply

When you work with a PlanEnroll advisor, you can:
  • Review different annuity options based on your goals
  • Ask questions in plain language
  • Get help completing your application
  • Receive support before, during, and after enrollment
There is no obligation to apply, and consultations are designed to help you make an informed decision.An advisor will walk you through the process and help determine whether an annuity fits your financial needs. Reach out today!
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An annuity is an insurance contract between an insurance company and a contract owner. An annuity can be used to help save for supplemental income for retirement and/or preserve funds already saved for retirement. Interest and other guarantees in an annuity are subject to the claims-paying ability and financial strength of the insurance company that issues the product. Annuities are long-term vehicles. Many have surrender charges over many years, and withdrawals from an annuity prior to age 59 ½ may be subject to a 10% tax penalty. The growth in an annuity is tax-deferred, but taxes will be owed on withdrawals. Any withdrawal will reduce your annuity insurance contract value. Consult your annuity insurance contract for specific terms and conditions. Insurance agents do not provide, tax, legal or accounting advice.

Multi-year guaranteed annuities (MYGAs) are a type of fixed annuity with a guaranteed interest rate that typically lasts for multiple years. Fixed Indexed Annuities (FIAs) do not involve investments in an index. The index performance used to calculate credited interest typically does not include dividends. Some FIAs involve the use of multiple indexes. Methodologies for crediting interest differ among FIA products (e.g., point to point, high water mark, annual resets, single year, multi-year, etc.). Interest crediting methodologies may include caps, participation rates, spreads, margins, or fees that may change from time to time depending on the product.

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Get personalized guidanceConnect with a licensed insurance agent.1-855-700-8583 | TTY: 711Or have an agent contact you.
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