How do Annuities Work?

By: Brian Gassway

At RetireUS, we use a multitude of investment products to ensure you are on pace to accomplish your goals. Our Open Architecture Investment Platform has access to anything from mutual funds, Structured Products, life insurance to ETFs, custom built portfolios, and annuities. 

In this article specifically, we'll explore the world of annuities, dissect their various types, weigh their pros and cons, and spotlight the benefits of how some annuities may work better than others for your goals.

Understanding Annuities

Annuities serve as financial instruments engineered to furnish a reliable income stream during retirement, offering peace of mind and financial stability. These versatile products come in multiple forms, catering to diverse retirement needs and preferences.

Immediate Annuities:

Commence payouts soon after the initial investment.

Deferred Annuities:

Allow for accumulation over a specific period of time. 

Fixed Annuities:

Guarantee a predetermined payout.

Fixed Indexed Annuities: 

Provides steady retirement income payments that are based on the performance of an underlying stock market index.

Variable Annuities:

Offer investment options tied to market performance, subjecting investors to market volatility.

Exploring Fixed Index Annuities

Amidst the array of annuity options, Fixed Index Annuities (FIAs) stand out as a compelling choice for retirees seeking stability and growth potential. FIAs provide a unique blend of principal protection and opportunity for enhanced returns linked to the performance of a specified stock market index.

Unlike variable annuities, which expose investors to market risk, FIAs shield against downside losses while capturing the upside potential of the market, making them an attractive option for risk-averse investors.

Advantages and Disadvantages Of Annuities

As with any financial product, it's crucial to weigh the advantages and drawbacks before incorporating them into your retirement strategy. Annuities can offer guaranteed income for life, tax-deferred growth, and the potential to mitigate longevity risk. However, they may entail surrender charges, administrative fees, and limitations on liquidity-- impacting your ability to access funds when needed. Evaluating the trade-offs and consulting with a RetireUS financial advisor can help you navigate the complexities and make informed decisions aligned with your financial goals.

Advantages:

• Possibility for guaranteed income for life.
• Tax-deferred growth potential based on a fixed or indexed rate.
• Option to protect your principal investment.
• Mitigation of longevity risk.

Disadvantages:

• Surrender charges.
• Administrative fees.
• Limitations on liquidity and investment flexibility.

Tailoring Annuities to Your Needs

When considering annuities for retirement planning, customization is key. As an advisor with RetireUS, if an annuity makes sense for your plan, my job is to tailor annuity solutions to your unique circumstances and objectives. 

I will assess factors such as income requirements, time horizon, risk tolerance, and estate planning goals to determine the most suitable annuity type and structure. Our 3-Bucket investment approach often integrates annuities for a Protected Growth part of your portfolio. Protected Growth aims to ensure correct pacing for your 

Conclusion

Annuities play a pivotal role in retirement planning, offering a spectrum of options to suit varying needs and preferences. In most cases, Fixed Index Annuities (FIAs) emerge as a standout choice, providing stability, growth potential, and downside protection in a volatile market environment.

By understanding the nuances of annuities and working with a knowledgeable team spearheaded by a team of CERTIFIED FINANCIAL PLANNERs™, you can navigate the complexities of retirement planning with confidence and get on a path towards financial freedom.

Frequently Asked Questions (FAQs)

What is the significance of annuities in retirement planning?

• Annuities serve as valuable tools to generate guaranteed income during retirement, garner steady returns, and/or shielding against the risk of outliving one's savings.

How do Fixed Index Annuities (FIAs) differ from Variable Annuities?

• FIAs offer principal protection and growth potential tied to an index, while variable annuities may fully expose investors to market risk.

Are there any tax implications associated with annuities?

• Most annuities offer tax-deferred growth, meaning taxes are deferred until withdrawals are made, providing potential tax advantages during retirement.
• There are Roth options with certain annuities. 

Can annuities be customized to accommodate specific retirement goals?

• Yes, annuities may be tailored to address individual needs, including income requirements, risk tolerance, and legacy planning objectives.

How can I determine if annuities are suitable for my retirement plan?

• Consulting with a licensed financial professional with RetireUS can help assess your unique circumstances and determine whether annuities align with your long-term financial objectives.
   

This article is provided by McAdam LLC dba RetireUS for informational purposes only. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. No portion of this article is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax, or legal advice. Certain information contained in this report is derived from sources that McAdam believes to be reliable; however, the Firm does not guarantee the accuracy or timeliness of such information and assumes no liability for any resulting damages. 

This article is the sole opinion of this individual and is not indicative of the firm’s belief. 

This represents a very general comparison and may not include all the information related to the product, security, investment shown or pros and cons. Please review the provided product prospectus for full details regarding the specific investments or strategies presented.