Learn how insurance-based retirement strategies may provide protection, tax-deferred growth and predictable income and understand the limitations before making a decision.
What Is an Annuity?
An annuity is a contract issued by an insurance company. Depending on the contract, it may help protect principal, accumulate value on a tax-deferred basis or provide income during retirement.
Fixed annuities credit a stated rate of interest. Fixed indexed annuities credit interest based partly on the performance of an external market index, subject to contract limits. They do not directly invest in the stock market.
What Are The Benefits of Annuities?
Principal Protection
Both fixed and fixed indexed annuities protect your principal by avoiding direct market risk. A fixed annuity pays a set guaranteed rate, while a fixed indexed annuity ties earnings to a market index with a zero-percent floor during market drops.
Tax-Deferred Growth
Fixed annuities and fixed-indexed annuities both offer tax-deferred growth, meaning you do not pay taxes on your earnings until you take the money out. This allows your annuity value to compound faster over time compared to taxable accounts.
Income Options
Fixed annuities and fixed indexed annuities offer income options that include lifetime income, payments for a specific period, and joint-and-survivor payouts. These options let you choose between immediate income or deferred income that starts at a future date.
No Direct Market Losses
Fixed annuities protect your principal and do not suffer direct market losses. Fixed indexed annuities offer growth tied to a market index while still preventing your baseline principal from dropping due to market drops
Who Might Consider An Annuity?
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People approaching or living in retirement
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People seeking more predictable retirement income
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People wanting to protect a portion of retirement savings from direct market losses
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People who can leave the money in place for the contract term
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People who already have adequate emergency and short-term liquidity
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Consideration: An annuity may be inappropriate when someone needs frequent access to the money, is seeking maximum market growth or does not understand the contract restrictions.
How I Help
I help clients understand when fixed and fixed indexed annuities may be appropriate for their retirement goals. My goal is to help determine whether an insurance strategy can provide useful protection or predictable income and whether an existing annuity or insurance strategy remains appropriate. |
Serving individuals and families in Waterford, West Bloomfield, Keego Harbor, Commerce Township and communities throughout Oakland County.
Disclosure: investment advisory services are offered separately through Appropriately licensed professionals at Z Advisory Innovations.
Reviewed by Michael A. ZoellnerDirector of Insurance and Retirement Income Specialist
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Frequently Asked Questions About Fixed and Fixed Indexed Annuities
What is a fixed indexed annuity?
A fixed indexed annuity is an insurance contract designed to protect your money from direct stock-market losses while giving it the opportunity to earn interest based partly on the performance of a market index. You are not actually invested in the index. The amount of interest you receive is determined by rules in the contract, which may limit how much growth is credited.
Can a fixed indexed annuity provide guaranteed retirement income?
Some fixed indexed annuities offer an optional feature that can provide income for the rest of your life. The amount of income depends on factors such as your age, how much money you contribute, how long you wait before taking income, and the specific terms and costs of the contract. All guarantees depend on the financial strength and claims-paying ability of the issuing insurance company.
What are the disadvantages of fixed and fixed indexed annuities?
Annuities are generally designed for long-term retirement money, so access to your funds may be limited during the surrender period. Taking out more than the contract allows could result in charges, and your growth may be lower than the stock market during strong years. An annuity may be useful for part of a retirement strategy, but it is not appropriate for emergency savings or every retirement dollar.
How do annuities compare with certificates of deposit (CDs)?
A certificate of deposit is a bank product that usually pays a stated interest rate for a set period and may be protected by FDIC insurance within applicable limits. An annuity is an insurance contract that may offer tax-deferred growth, beneficiary options, and the ability to create lifetime income. The better choice depends on your goals, how soon you may need the money, and whether income or access to your savings is more important.
How can I compare annuity options in Waterford, Michigan?
Annuities can vary significantly in their interest potential, surrender periods, withdrawal rules, income features, costs, and insurance-company strength. I help individuals and families in Waterford and throughout Oakland County compare fixed and fixed indexed annuity options from multiple insurance carriers. The first step is determining whether an annuity is appropriate at all, not assuming that purchasing or replacing one is automatically the right decision.