In this time of economic upheaval annuities are emerging as the new darlings of the investment world. It’s easy to understand why investors are finally beginning to embrace this flexible and reassuring product.
But it is one thing to want to feel good about what you invest in and it’s another thing to know enough about it that you know you have made the right decision for you and your financial future. Before you decide whether or not annuities are the right fit for your financial goals, it’s important that you learn about the different types that you can invest in.
1. Fixed, Variable or Indexed
When it comes to cash accumulation, there are several ways that your annuity might grow and surpass your principal payment. The method your annuity uses will be determined by whether you choose a fixed, variable or indexed annuity.
- A fixed annuity is one that grows at a fixed, guaranteed rate. This takes all the guesswork out of your investment growth and allows you security that other vehicles can’t offer.
- Indexed annuities are like variable annuities in that they are meant to
offer a variable return. But unlike variable annuities, indexed
annuities have a floor or minimum amount of interest they will earn and a ceiling
or maximum amount of interest. In addition, their growth is based on
the performance of a stock index (like the Dow Jones Industrial Average
or the S&P 500).
- A variable annuity is one with sub-accounts that have underlying investments in the market. The sub-accounts work much like mutual funds do. Your principal is invested in the sub-accounts and the growth your annuity is dependent on the performance of the underlying investments in the sub-accounts. This means you could experience anywhere from no growth at all to much more growth than a fixed annuity offers. Some variable annuities do include guaranteed minimums that protect your principal and payouts.
2. Deferred or Immediate
Annuities are available in two different formats: Deferred and Immediate.
- A deferred annuity is one that is allowed to ‘sit and stew’ for a while before you begin taking distributions. While your single (or multiple) principal payments are within the annuity, it accumulates value either
through a variable sub-account or through fixed growth. Then, once the accumulation period is over. the annuity annuitizes and begins making payments as agreed.
- An immediate annuity is one that pays out immediately after being funded. When you have a lump sum to fund the annuity and you want to start receiving payments immediately, the immediate annuity is often the go-to choice.
To get a free annuity quote in Minneapolis, call us today at 651-264-1230.