What are Annuities?
An annuity is a contract between an individual and an insurance company. The investor contributes a sum of money—either all up-front or in payments over time—and the insurer promises to pay them a regular stream of income in return.
Types of Annuities
Below is an overview of the different types of annuities. As you will learn, the menu of different annuities means there is a level of flexibility and customization that can go into incorporating an annuity into your retirement strategy and estate plan.
Let’s dive in.
A variable annuity is considered to be a long-term investment tool typically used as a component in a retirement plan. A variable annuity typically provides tax-deferred growth potential and an array of different investment options for you to choose from. For example, variable annuities can include features such as a guaranteed death benefit and income for life.
A fixed annuity can provide a proverbial safe haven for people who are averse to market volatility. A fixed annuity offers a level of security by featuring a fixed, guaranteed interest rate while also ensuring the interest earned is tax-deferred.
As the name implies, an income annuity provides an “immediate” ongoing source of income that you cannot outlive. There are two major types of income annuities - a single premium immediate annuity and a deferred income annuity.
A single premium immediate annuity enables you to use a lump sum of your assets in order to purchase a guaranteed “retirement paycheck” that you will receive each and every month for the rest of your life. In addition, if you select a joint life option, that “retirement paycheck” will continue to be paid out for the remainder of your spouse’s life as well.
Another option is the deferred income annuity. This type of income annuity enables you to use a lump sum or multiple purchases to receive the aforementioned “retirement paycheck.” The key distinction is that a deferred income annuity provides guaranteed income commencing at a future date of your choosing (typically between 13 months and 40 years from the initial purchase).
Pros and Cons of Annuities
Like all other financial tools, there are positives and negatives associated with annuities. One of the biggest pros of an annuity is that it provides a steady, reliable income stream that you can count on during your retirement. A con of an annuity is that if you were to suddenly pass away earlier than expected, you may miss out on the real value of the annuity. In addition, the fees associated with annuities are typically higher relative to other savings and investment vehicles, particularly mutual funds, and similar investments.
Why Choose Oxford Advisory Group
There are plenty of financial advisors to choose from, so why choose Oxford Advisory Group? Because we are financial professionals with a deep passion for helping individuals and families achieve their ideal retirement.
Frequently Asked Questions About Annuities
Annuities are contracts between you and an insurance company that can provide a unique combination of insurance and investment features. Annuities complement other retirement plans and, depending on what type you select, they may provide guaranteed lifetime income, opportunities for tax-deferred growth, guaranteed yield, downside protection, market participation, flexible withdrawals, and legacy protection for your beneficiaries.
Schedule a Meeting with Us Today
As you can tell, selecting an annuity that will meet your needs is not straightforward and requires serious thought and analysis. This is why it makes sense to connect with Oxford Advisory Group today to discuss different options that may work for you, including whether to purchase an annuity. Schedule a meeting with our team today to learn more.
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