Annuities are a low-risk, stable investment product that can boost your investment portfolio if you’re approaching retirement age or are currently retired. The income payments you’ll receive by purchasing one of these products can support you with managing expenses, diversifying your portfolio, or updating your will. A reliable annuities provider company can help you find the best fixed annuity rates and multi-year guarantee terms to ensure you’re making sound financial decisions that support your future.
What is an annuity?
An annuity is an investment product sold by an insurance company for a fixed value that pays you back over time, at either a fixed or variable rate. Annuities are a popular long-term product that prepares you for retirement. The individual purchasing the product will usually pay for the product upfront, regardless of annuity type. Annuities are one of the safest investment products available on the market, particularly if you’re purchasing a fixed product.
The terms of an annuity differ dramatically, with variances in rate of return, length of the contract, and terms for how the insurance company can utilize your money. While many annuities offer returns directly to the purchasing individual, an annuity can also be a component of an estate. The annuity provider pays the beneficiary of the estate rather than the purchasing party.
You don’t need a specific credit score to purchase an annuity because you’re paying for the product upfront before payments begin. Before you buy an annuity, you’ll need to make sure that the payments period associated with the annuity won’t outlive you, particularly if you’re purchasing a product after you’ve already retired. An annuity provider company can connect you with insurance companies that offer products that match up with the contract terms you’re looking for when you’re assembling your investment portfolio.
Explaining the differences between annuity products
Annuity investments are typically divided into three major categories: fixed annuities, variable annuities, and indexed annuities. Let’s identify the primary differences between these products so you can find out which annuities might be the right fit for your portfolio.
Fixed annuities
Fixed annuities are the most stable of these three options and are the most popular product offering for diversifying your investment portfolio before retirement. The fixed annuity offers the purchasing entity a set rate of return for the product’s entire term that cannot be altered after purchase. If you’re buying a fixed annuity, you’ll already know the value of your annual repayments upfront. However, because the fixed annuity is the lowest-risk annuity product, it’s also the option that offers the lowest potential returns.
Variable annuities
Variable annuities allow investors to choose the investment funds that the annuities provider puts their money towards after purchase. The return payments you receive after purchasing a variable annuity then change depending on the success of the funds you choose. You can spread the investments across various funds, and you sometimes don’t have to meet the minimum investment value for these funds. Variable annuities also allow the purchasing entity to work with mutual funds. While the variable annuity can offer higher returns than a fixed annuity, it’s also a risker option. However, almost all annuities are considered a relatively stable investment, regardless of which type you’re purchasing.
Indexed annuities
Indexed annuity products typically carry less risk than a variable annuity but more than a fixed one. For anyone seeking a choice that’s in between variable and fixed annuities, indexed annuities are usually the way to go. Rather than your money going towards a selection of funds, the annuity provider puts the money into a financial index, such as the S&P or the Dow Jones. The value of your repayment then depends on the success of this index.
Benefits of annuity products
Annuities offer a variety of benefits that make them a solid choice for any retirement plan or investment profile. Here are a few of the primary benefits you’ll want to know about before purchasing one of these products.
Regular payments
Regardless of which annuity you choose, you’ll receive a regular, annual payment back, which is typically referred to as the annuity’s income. The payments essentially work as a yearly income that helps you manage your post-retirement living expenses without having to worry about inflation decreasing the value of your life savings. The frequency and value of your annuity income will vary depending on the terms of the contract you’re purchasing.
Stable, low-risk product
Annuities are a low-risk investment product, regardless of annuity type. Variable and indexed annuities do come with certain risks. However, the costs and the probability of these risks affecting your income are significantly lower than other products in your retirement portfolio, including stock investments. If you’re worried about risks associated with annuities, a financial advisor can help you determine which product, if any, is right for you.
Tax-deferred contributions
The money you pay the annuities provider upfront to receive the product is tax-deferred, regardless of annuity type. You essentially won’t have to pay any taxes on the money you spend to invest until you begin receiving your return income.
Primary drawbacks of annuities
Annuity investments come with two major drawbacks. First, the money you make from this form of investment might be lower than other portions of your retirement portfolio. The second drawback is that you can’t withdraw money from an annuity investment without a substantial financial penalty. If you need to withdraw the money you put towards an annuity due to an unforeseen expense, you’ll likely forfeit your potential for earning anything in return from the product, regardless of how close you are to finishing the annuity term. While low liquidity might seem like a significant drawback, it’s rarely a problem for individuals with a diversified portfolio.
Conclusion- benefits, and drawbacks of annuities
A reliable annuities provider can help you find the best rate and term length for your portfolio and should always offer transparent answers to your questions. The best providers educate their clients to ensure they’re making the right financial decisions. If you aren’t sure if an annuity is the right form of investment for your future, you should consult with a financial advisor before purchasing.
Conclusion:
Annuities are a low-risk, stable investment product that can boost your investment portfolio if you’re approaching retirement age or are currently retired.
