Annuities are financial products that can help you create guaranteed retirement income and mitigate the risk of outliving your savings. They pay out a fixed stream of payments, making them an attractive option for retirement.

How Do Annuities Work?

Annuities are issued and sold by financial/Insurance institutions, which invest funds from individuals. After you’ve fully funded the annuity, the financial institution can issue you a stream of payments at a later date.

Annuities work with an accumulation phase and an annuitization phase. During the accumulation phase, you fund the annuity and don’t receive any payments. During the annuitization phase, you begin to receive regular payouts.

What Are The Different Types of Annuities?

There are different kinds of annuities with different structures for maximum flexibility. The following are a few types of annuities:

  • Fixed annuities, generally have a guaranteed interest or crediting rate, that can also provide regular periodic payments to the owner.
  • Variable annuities, which have more risk because they are directly tied to the market and do not have protection against market correction, however they can have more financial gain and therefore can allow the owner to receive bigger payments if the annuity fund does well but smaller payments if the investments do poorly.
  • Immediate annuities, known as a SPIA (Single Premium Immediate Annuity) which begin making payments immediately (30 days after you deposit a lump sum.) Unless you specifically request a later date.
    • Fixed Indexed Annuities, are essentially a combination of a fixed and a variable annuity. They protect individuals from losing value due to market correction and can have a guaranteed minimum (even 0 but does not allow you to lose value) however they also offer the benefit of being able to receive indexed crediting from the market while not being directly invested so that the annuity doesn’t lose value because of a downturn in the market.
  • Deferred income annuities, which don’t begin paying out after your initial investment. Instead, they begin paying out at the age you specify that you would like to begin receiving payments

Is An Annuity Right For You?

An annuity could be a great fit for you if you’re seeking a guaranteed, stable stream of income for your retirement. In addition, annuity owners can’t outlive their income stream, making it a very attractive product for retirees. However, there are a few negatives to annuities, particularly that the lump sum you put into the annuity is illiquid and subject to withdrawal penalties.

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Thinking About Investing In An Annuity?

American Insurance Group can help you decide whether an annuity or another financial product is a better fit for your retirement income needs. We’re here to help you make informed, educated choices to support you throughout your retirement. So get started today by contacting us today!
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