Annuities
Think of an annuity as setting up your personal pension plan. Providing guaranteed, consistent income for life.
Almost all annuities have one feature that most other retirement products do not. They promise you guaranteed income payments for a period of time, including the rest of your life. Even if your entire principal has been drained to a zero balance, the annuity will continue to make your guaranteed payments for as long as you live. The are two generally two types of annuities, which are Immediate Annuities and Deferred Annuities:
Immediate Annuity
As the title suggests, immediate annuities begin paying you as soon as your annuity policy is in force. Payments can be guaranteed, for you and/or your spouse, for either a certain amount of time, also known as "period certain," which is usually 10 or 20 years. On the other hand, payments can be guaranteed for your entire life (or your spouse's life), even after your principal has been exhausted.
Deferred Annuity
Deferred Annuities have both an accumulation period and a payout period. The accumulation period can be as little as one year or as high as 14 years. When working with Deferred Annuities, we at MAZ IPS, focus on two types: The Fixed Annuity and the Fixed Indexed Annuity.
Fixed Deferred Annuity
Fixed Annuities guarantee that your money will earn the annual illustrated interest rate for a period of time... Usually anywhere from 1 year to 10 years.
Fixed-Indexed Deferred Annuity
Fixed Indexed Annuities earn interest by linking its performance to positive-only movements of a market index (like the S&P 500).
A fixed-deferred annuity is similar to Indexed Universal Life insurance policy, in that the interest credited to your cash value will never be less than zero, even if the market index is negative. This guarantees that your principal, plus interest gained, will never lose money.
Annuity - Other Advantages
By far, the fact that you are guaranteed to receive payments for life is the biggest advantage to utilizing an annuity. However, there are some other important advantages to keep in mind.
Premium Bonus
Many annuities give a premium bonus to the principal you used to start your new annuity contact. These bonuses usually vary from 3% to 10%, and depend on the insurance company, and the initial principal amount.
Adding to Principal
Many deferred annuities allow you to continue to contribute additional funds to your annuity AFTER the initial premium has been paid.
Death Benefit
Most annuities offer a death benefit that can be paid to your beneficiary. This benefit acts a safety net should you die prematurely and still need to provide for your surviving family.
Partial Withdrawals
Most deferred annuities offer a partial withdrawal feature before the annuity matures. This provision typically allows you to take up to 10% per year from your principal without penalty.
Transfer to Spouse
When you pass, most annuities will allow your guaranteed income payments to continue to your surviving spouse.