June is National Annuity Awareness Month, a time to share with Americans the important role annuity products can play in a retirement savings plan. In honor of the awareness month, we’re excited to share the following Q & A to answer some of the most common questions about annuities.
Q: What is an annuity?
A: An annuity is a financial vehicle that can be an important part of your retirement strategy. It can help you accumulate money for retirement or turn your retirement savings into an income stream.
Q: How does an annuity work?
A: You make an initial investment in an annuity, and then the annuity makes payments to you in the future. The income from your annuity can be paid monthly, quarterly, annually or in a lump-sum payment. How much you receive with each payment depends on several things, including the length of your payment period and whether you select a fixed interest annuity, fixed index annuity or an immediate annuity.
Q: How are fixed interest annuities, fixed index annuities, and immediate annuities different?
A: Here’s a brief rundown on these three types of annuities:
- A fixed interest annuity earns a guaranteed fixed rate of interest.
- A fixed index annuity can earn interest based on an external market index. You’re not actually participating in the market, so the money in your annuity isn’t at risk.
- An immediate annuity is purchased with a lump-sum payment and pays an income stream that starts almost immediately.
Q: Why should I get an annuity?
A: There are many benefits to purchasing an annuity. Annuities offer a safe way to accomplish your retirement goals through guaranteed payments for the rest of your life. Here are several important annuity benefits:
- Your principal is always protected, even if the market fails to have positive gains.
- Your earnings accumulate on a tax-deferred basis.
- There are many flexible payout options that can provide a steady income that you can’t outlive.
- Annuities won’t affect your Social Security benefits.
We hope this Q&A helps you better understand how helpful annuities can be during retirement!