Annuities are very common in the investment marketplace, because they are great investment vehicles and also because they are widely marketed. Because of this it’s important to get an adviser you trust to help you navigate all of the options available.
Many people like the advantage of deferring taxes to a later time when their income is lower so that the income brackets are lower. Although their income may be lower, they must consider that tax brackets are not guaranteed to stay the same. So although many professionals believe that deferred annuities are incredible investments for tax deferral, make sure you understand that there are many ways to defer taxes and also that in some cases paying taxes is better than deferring them. But remember, Hara Financial & Insurance Services is not licensed to and does not give tax advice and we recommend any and all tax related questions should be directed to a licensed tax professional.
Fixed Deferred Annuities
Fixed deferred annuities are called “fixed” annuities because there is typically a “fixed” interest rate that is credited to the annuities value every year. Many people like the guarantees that are provided in these annuities, since they typically have provisions that guarantee that the client will never lose their principal or the minimum interest that is guaranteed. Some of these annuities are tied to an index in order to provide higher potential returns. With these annuities the rate of interest credited will fluctuate, so instead of a fixed interest they will simply guarantee that the annual interest will never be below 0%. These are known as fixed indexed annuities or equity indexed annuities.
When most people think of annuities they typically will think of income annuities. Companies historically have paid pension plans in the form of an annuity and therefore many people have tied the word “annuity” to “monthly income”, but as you can see above, their are many different types of annuities aside from income annuities.
Lifetime Income Annuities
Lifetime income annuities are simply annuities that pay a benefit for the entire life of an annuitant. Typically, these are purchased from people that desire to have a fixed income that is guaranteed, looking to avoid the stress and hassle of investing their money while hoping it lasts for the remainder of their life. Knowing the payments will continue for the rest of their life is sometimes a priceless benefit that some clients couldn’t imagine living without.