What Is An Annuity?
July 12, 2022 | Tom Peterson
An annuity can play an important role in your retirement. Whether you are trying to increase your retirement savings, control some tax exposure while accumulating, or need guaranteed income, there are annuity solutions that you should consider. Let’s have a look at what an annuity is, the different types, and how to determine if it’s the right option for you.
What is an Annuity?
An annuity is a legal contract between an insurance company and the owner of the contract in which the owner makes a lump-sum payment or series of payments. In return, the owner receives regular disbursements which can begin immediately or at a chosen point in the future.
Funding an Annuity
- Deferred: In a deferred annuity, you can choose to invest money regularly over a duration of time, or make a lump sum deposit in return for a steady stream of annuity payments starting at some point in your future.
- Immediate: In an immediate annuity, you will pay a lump sum of money in return for a series of payments.
Types of Annuities and Potential for Growth
The two phases of an annuity contract consist of the accumulation and distribution phases. During accumulation, your contributed funds can grow in cash value. The second phase is the distribution phase, where you receive your disbursements. Growth is dependent on the type of annuity, and how you choose to receive these funds will depend on your financial goals.
Let’s look more closely at the various types and how they work.
- Fixed: You pay a premium invested at a fixed rate, and the investment grows based on a guaranteed rate of return. The payout is a guaranteed amount.
- Variable: You choose which mutual funds to disperse your funds into. This allows you growth but can increase risk, as there are fees associated with variable annuities.
- Indexed: Earnings track an index (such as S&P) within the stock market, and you get guaranteed minimum growth. There is still some market volatility, but guarantees can minimize your risk.
Depending on the type of annuity, there can be different disbursement options. You can choose to have your money disbursed as a lump sum or annuitized for a set amount of time or for the remainder of your life. Taxation guidelines can also vary based on the annuity and disbursement option chosen.
How Twin City Underwriters Can Help in This Process
At Twin City Underwriters, Inc. (TCU), we have been helping people make sound insurance decisions for over 50 years. We understand the significance of protecting what is important to you. Our goal is to help individuals and families determine if they are a suitable candidate for an annuity. To make this recommendation, our team will evaluate your financial objectives, current financial situation, and investment or savings horizon.
We have stable, long-term relationships with many leading insurance companies. We use those relationships and our experience to walk you through the process of selecting and applying for a suitable annuity. In addition, we provide ongoing customer service as questions arise and your needs change.
At Twin City Underwriters, we know that individualized attention to a client’s personal situation and needs are especially important, which is why we take the time to understand you and your financial goals.
Are you ready to have a meaningful discussion about your financial needs? Call or email TCU today to set up a free, no-obligation appointment with one of our dedicated agents.
Call Twin City Underwriters to learn more: 651-488-0172 or 800-507-6778.