What is an Annuity?

An annuity is a financial product that is often used to supplement retirement by providing lifetime income for individuals during their retirement years.


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Common questions answered

Answers to Frequently Asked Questions

What are the benefits of purchasing an annuity?

Annuities offer several benefits, including tax-deferred growth, which means you won't pay taxes on your earnings until you start receiving payments. They also provide a guaranteed income stream, helping to ensure you won't outlive your savings. Additionally, annuities may offer death benefits that can provide financial protection for your loved ones.

How do I choose the right annuity for my needs?

Choosing the right annuity depends on your individual financial goals and circumstances. Consider factors such as your risk tolerance, investment timeline, and desired level of income flexibility. It's essential to work closely with a knowledgeable annuity agent who can help you understand your options and select the annuity that best aligns with your retirement objectives.

What happens to my annuity if I pass away?

The treatment of your annuity upon your death depends on the type of annuity and the options you've chosen. With some annuities, such as immediate annuities, the payments may cease upon your death. However, many annuities offer death benefits that can provide a payout to your beneficiaries. It's crucial to review the beneficiary designations and understand any potential tax implications for your heirs

What are the potential drawbacks or risks associated with annuities?

While annuities offer many benefits, it's essential to understand potential drawbacks. These may include fees and expenses, such as surrender charges for early withdrawals or administrative fees. There's also the risk of inflation eroding the purchasing power of your income over time. Variable annuities, in particular, carry investment risk, as their returns are tied to the performance of underlying investments.

Can I access my money if I need it before the annuity's payout period?

Annuities typically come with some liquidity restrictions, such as surrender charges for early withdrawals or penalties for accessing funds before the annuity's payout period. However, some annuities offer features like partial withdrawals or annuitization options that provide access to your funds when needed. It's essential to review the terms and conditions of your annuity contract to understand your options for accessing your money.

Are there any tax advantages to purchasing an annuity?

Annuities offer several tax advantages that can be attractive to investors. Contributions to qualified annuities, such as those held within retirement accounts like IRAs or 401(k)s, are typically made with pre-tax dollars, allowing for tax-deferred growth until withdrawals begin. Non-qualified annuities funded with after-tax dollars also offer tax-deferred growth, meaning you won't pay taxes on earnings until you start receiving payments. Additionally, annuities may offer the option to receive payments as a series of tax-deferred income payments, potentially reducing your tax liability in retirement. It's essential to consult with a tax advisor to understand how annuities may impact your individual tax situation.