So you are being told by your retirement specialist that an annuity is a great fit for a portion of your safe money. After talking it over with your family and friends, you learn that they have the exact opposite reaction towards an annuity. They tell you its a bad decision, and that you’ll never be able to get to your money. Why would your retirement specialist lie to you? You told your retirement specialist the goals of your money, and what you are trying to accomplish. How could he or she take that information, recommend a portion goes into an annuity, yet family and friends cringe at the word annuity?
Does this sound familiar at all? If so, then you are not alone. Are annuities bad products, or are they good products? The answer to that questions is, it depends. It depends on your situation, your goals, and what exactly you are trying to accomplish with your funds. It’s possible that your friends and family have put their money into the wrong type of annuity. That’s why its important for you, the consumer, to always speak with a local retirement specialist with questions or concerns about an annuity.
There are really three different types of annuities: immediate, fixed, and deferred. An immediate annuity is one where equal payments will be paid out over a selected amount of time. This is also the most common form of annuitazation. When an individual wins the lottery, they have the option of a lump sum payment, or payments paid out over a specific amount of time. The second option here my friends, describes immediate annuities.
A fixed annuity referees to a fixed, predetermined rate for a specific amount of time. A fixed annuity is very similar to how a CD (certificate of deposit) works. You, the client, will be guaranteed a “fixed” rate depending on the selected amount of time. A couple advantages of a fixed annuity over a CD is the fixed annuity is tax deferred, and skips probate upon death. This does not mean that the fixed annuity is always a better choice than a CD. This is where your local retirement specialist can come into play, and help answer any questions you may have.
The third type of annuity is a deferred annuity. This category consists of fixed annuities, index annuities, and variable annuities. A deferred annuity simply implies the annuities is deferred for a specific amount of time, maybe five or ten years. The fixed annuity as we said earlier is a fixed guaranteed rate, where the index and variable annuities are tied into market performance. Index and variable annuities became popular with the introduction of the guaranteed lifetime income rider. This is a rider that can be added for an additional charge, that can guarantee predictable lifetime income.
As you can see if a family member or friend had their money in the wrong type of annuity for their specific situation, they might have a bias opinion on annuities. I’m not here to tell you that an annuity is the holy grail. I think that if an individual is concerned with safety, protection and guarantees for their money, then you’d be a fool not to contact your local retirement specialist and inquire if an annuity is a fit for you.