When it comes to retirement, many people rely on 401(k)s and Social Security to provide them the necessary income they need. Sometimes, those sources of funds are not enough and retirees are faced with an income gap that they need to figure out how to fill.
This is where annuities can come in handy for some people. For those that aren’t sure what annuities are, they can be defined as a financial product that is designed to take in and potentially grow an individual’s funds, and then pay out a stream of payments upon annuitization.
While the media is full of positive and negative information regarding annuities, they can be a great resource for some people but are not meant to solve all problems. There are several different types of annuities, each serving a specific purpose:
Single Premium Immediate Annuity (SPIA)
A contract with an insurance company where you pay them a sum of money upfront (premium) and the insurance company promises to pay you a specific amount of money periodically for a certain amount of time whether that’s five years or the rest of your life.
Multi-Year Guaranteed Annuity (MYGA)
A contract with an insurance company which promises a fixed guaranteed rate of return for the entire duration of the contract’s term, which typically ranges from five to 10 years. These annuities were designed to allow the owner to earn a guaranteed interest rate for a specific period of time.
Traditional Annuity
Sometimes referred to as floating rate annuities, these types of annuities will usually offer a base rate of interest that is guaranteed for one year with the guarantee based on the claims paying ability of the issuing insurance company. They typically offer a higher first year guaranteed rate of interest than MYGAs and give the flexibility of not being locked into an interest rate for the term of the contract. However, the interest can change on an annual basis.
Fixed Index Annuity (FIA)
Offer similar features and guarantee of principal as other fixed annuities, but they credit interest to your account based on a formula and independent stock market index, like the S&P 500.
Variable Annuity (VA)
While it has similar features as the fixed annuity, a variable annuity differs by offering the upside potential of the investment and there is a risk that your retirement assets can go down with the market.
Generally, annuities are meant to be long-term financial products and aren’t meant for short-term goals.
At American Financial Security, LLC, we are dedicated to providing you with personalized financial solutions and making sure that any annuity you have fits your unique situation.
Sifting through the different types of annuities and ways to bridge your income gap in retirement can be stressful; but it doesn’t have to be. When you work with the right financial professional, they can offer different strategies that will help you reach your dream retirement that you’ve worked so hard for. QCBN
By Ronald Stevenson and Barbara Clark Stevenson
Ronald F. Stevenson & Barbara Clark Stevenson own American Financial Security, LLC. They specialize in Retirement Income Planning, Fixed Annuity Strategies, Social Security Maximization, Tax Free Income Design, Personal & Corporate Tax Preparation and Planning. For more information, call 928-771-8368 or visit www.AmericanFinancialSecurity.net, 3112 Clearwater Dr., Suite B, Prescott, AZ 86305
Ronald F. Stevenson offers Advisory services through American Financial Investments LLC a Registered Investment Advisor in Arizona. Insurance products and services are offered through American Financial Security, LLC. American Financial Investments LLC and American Financial Security, LLC are affiliated companies.
Disclaimer: Annuities are insurance products and are regulated by state insurance laws and regulations. Variable annuities are securities and are regulated by the Securities and Exchange Commission (SEC). Annuities are designed to be long-term financial products and can involve such fees as administrative fees, rider fees, mortality and expense charges, and surrender charges. Early withdrawals may be subject to surrender charges. Withdrawals before the age of 59 ½ may be subject to an additional 10% IRS penalty. Annuities are not guaranteed by the FDIC or any government agency.
This document is for informational purposes only and does not constitute legal, tax, accounting, or financial advice. Please consult us for additional information regarding your specific financial situation.