Interest in annuities for retirement income are growing as fewer businesses are offering pensions for retirement funding. Annuities from Phoenix Insurance Group offer an opportunity for employees to go outside of the 401k formula for retirement investing, and are an option for people who are worried about outliving their income. Who doesn’t want to build a bigger nest egg, after all?
What are Annuities?
Essentially, annuities are a contract between you and the insurance company where you pay the insurance company today to make payments to you. These payments either begin immediately or at some time in the future. You can also opt to receive this payment as one lump sum payment or a series of payment. Many people use annuities to replace the monthly stream of income that pensions once promised.
What Kinds of Annuities Can You Buy?
Strictly speaking, there are three kinds of annuities you can buy.
- Fixed Annuity – insurance companies guarantee a minimum rate of interested for a fixed number of periodic payments (monthly, quarterly, yearly, etc.). These annuities are heavily regulated by state commissioners and do have some risks and benefits to consider before taking the plunge.
- Variable Annuity – insurance companies put you in the driver’s seat allowing you to direct the payments from your annuities into other investment options, such as mutual funds. Payout in these investments is dependent upon your initial investment, the return on that investment, and the expenses associated with the investment process. These annuities are regulated by the SEC.
- Indexed Annuity – regulated by the state insurance commissioner, the insurance company gives you credit with a return based on a stock market index.
Even among these annuities you have the option of immediate or deferred annuity payments, which, as their names imply, either pay out immediately or pay out at a later date.
Deferred variable annuities offer a greater opportunity for future growth, for instance, but also carry greater risks due to market volatility. Deferred fixed rate annuities, on the other hand, are a more conservative choice with a guaranteed rate of return.
What Makes Deferred Fixed Annuities Different from Bank CDs?
There are some similarities in time frame and results between deferred fixed annuities and bank CDs. The differences, though, are important.
- Annuities are not insured by the FDIC.
- Early withdrawal of annuities (before the age of 59.5 can result in stiff IRS penalties.
- In some instances, deferred fixed rate annuities offer more access to your assets than a CD affords.
- Earnings on annuities are tax deferred.
The last difference is the one that makes annuities a worthwhile investment for most people along with the ability to use it to create a steady income you can rely on.
Cautions Regarding Annuities
While they are promising investments that offer real value to the people who use them wisely, annuities are not the right choice for everyone to make. There are some potential drawbacks to educate yourself about and avoid when investing in annuities, such as those listed below.
- Be aware of fees when buying, selling, and/or surrendering annuities.
- Make sure you understand the details before buying. Read all the paperwork and fine print and ask questions about things you don’t understand.
- Only work with reputable insurance agencies when purchasing annuities. It doesn’t matter what kind of guarantee they’re offering if it’s an agency that’s here today and gone tomorrow.
Annuities work best as long-term investments, work with an advisor you can trust for the long haul.
Phoenix Insurance Group is proud to serve Central and North New Jersey’s retirement investing needs. Please contact us right away at: 908-879-6500 with any questions you may have regarding your annuities and if they are the right choice for your retirement planning.