|
An annuity is a financial contract between you and your life insurance company.
How exactly does an annuity work? You invest money into an annuity and, in exchange,
the company agrees to make a future income stream available to you. It is an
investment vehicle that typically gives the policyholder the option of receiving
a stream of fixed payments over their lifetime.
The key benefits of annuities are access to an income you cannot outlive and
potential relief for your family from probate after you are gone. In addition,
investing in an annuity provides safety for your principal as well as tax-deferred
growth of funds.
A fixed annuity gives you the stability of a fixed interest rate that is determined
by the Company and is guaranteed never to be below a minimum interest rate. A fixed
annuity can be a deferred annuity, for which there is time elapsed between the
Purchase Payment and the stream of payments, or an immediate annuity, which gives
you access to a stream of income immediately after you purchase it. Also, a fixed
annuity can be flexible premium or single premium. Flexible premium annuities allow
for multiple purchase payments, while a single premium annuity requires one lump-sum
Purchase Payment.
A variable annuity is a deferred annuity that allows you to participate in the
investment of annuity funds by determining how much of the Purchase Payment will be
invested in a series of accounts. These accounts can range from general accounts to
a series of sub-accounts tied to various financial markets. Variable annuities can
allow for flexible premiums and single premiums.
A fixed-indexed annuity is a variation of a traditional fixed annuity and gives
you the opportunity to earn interest at an interest rate that is determined according
to a formula based, in part, on the change of a referenced index. The advantage of
a fixed-indexed annuity is that you won't lose your money, regardless of index
performance, unless the contract is surrendered during the early withdrawal period.
Plus, your indexed interest locks in each year. Fixed-indexed annuities can also be
flexible or single premium.
This Web site is not intended or written to be used as
legal or tax advice. As a taxpayer, you cannot use it
for the purpose of avoiding penalties that may be imposed
under the tax laws. You should seek advice on legal or tax
questions based on your particular circumstances from an
independent attorney or tax advisor.
*Statistics compiled from the 2004 Retirement
Confidence Survey, Employee Benefit Research
Institute; and "Coming Up Short: The Challenge of 401(k) Plans," Alicia Munnell
and Annika Sunden
|
|
