As more people are concerned about living a long life in retirement, annuities are becoming a solution for long-term planning. An annuity is the savings version of a life insurance product. All annuities are classified as either Deferred or Immediate.

Deferred Annuity:

Deferred annuities are tax-deferred accounts where the owner invests a lump sum (such as from a rollover 401k or IRA) or makes regular payments over the course of many years. This period of cash growth and build up is called the accumulation phase.

Immediate Annuity:

Immediate annuities are different. The owner puts in a lump sum and starts receiving payments right away based on the term of the annuity contract.

Annuity: A Reverse Bet!

In a way, annuities look like a reverse life insurance policy.

The primary difference between an annuity and life insurance is when payment is made. Annuities pay a set amount of money monthly, quarterly, or annually to meet future financial needs, usually in retirement. Life insurance pays the value of the policy at the time of death.

With life insurance, you make a bet with the life insurance company. You make payments to the policy, for example, $1,000 per year, and if you die too soon, the company will pay the death benefit to your beneficiary. In this case, your family wins; the company loses.

With an annuity, you give them a lump sum or accumulated premium, for example $500,000 , and bet that you will live a long time. If you live long enough, the company keeps paying you monthly. In that case, the company may end up paying you more than what you put into the annuity; thus, you win. But if you die too soon, the company wins because they will stop payment or only pay up to a certain period.

Thus, annuities are a good solution for people who worry that they may live too long and run out of money. Annuities can help them feel confident about their financial future.

Annuities offer different investment options.

• Fixed Annuity: Guarantees a fixed rate of return.
• Fixed Index Annuity: Return is credited by a market index, such as the S&P 500. The index normally has a minimum floor and a maximum cap, for example 0% to 8%. Thus, if the S&P 500 goes higher than 8%, it will credit max 8%. And if index has a loss, it will hit a 0% floor; there is no loss in the account.

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