You may be wondering, what are the benefits of an annuity? It’s an important question. Here we will discuss their general potential benefits. Offers vary greatly from insurance company to insurance company, so always ensure that the offer you accept, provides the benefits you want or need. The annuity that’s right for you depends on many things, too many to explain in text. If you have more questions, fill out our form and a professional will explain in detail.
Annuities provide a safe investment for your retirement. The amount of risk greatly depends on the type of annuity you choose. The level of protection a variable annuity provides is really no different from the security you can have in the stock market – it all depends on the investments you choose. A fixed annuity on the other hand, is a very safe investment, as the payments are pre-set at a given interest rate and time. Equity indexed annuities are somewhere in between, offering more protection linked to the index versus individual stocks, as well they can come with a fixed option to switch over in the event that market conditions change. All annuity issuer’s are regulated by the state that they do business in, and in the event of insolvency, most states guarantees some of the principal the investor input, up to a limit (usually between $100-500k).
Return on Investment (Tax Deferral + Good Interest Rate)
Despite the protection of principal, and option for a guaranteed interest rate that annuities can offer, they can still offer a good return (when compared with other low risk alternatives). Compare the returns on fixed annuities (which currently range between 4-8%) versus the interest rate you’ll receive on other safe investments, such as Bank CD’s, and Government Bonds, and you’ll see the beneficial return annuities provide.
Again, indexed annuities and variable annuities can offer the same types of returns as your “normal” stock investments.
Further improving the ROI versus other securities, annuities are tax deferred, which can have a major, major impact on the return you receive over the long term.
Income for Life
One concern many people have is do they have enough money for retirement? Will they outlive their savings? With fixed annuities, you can receive guaranteed payments, at regular intervals, for life. With a variable annuity you can still guarantee payments, depending on the risk you choose to take with your investment freedom.
If it was an option, many people would invest as much as they could in their 401(k) or IRA for the tax benefits, but both options have contribution limits. This is not the case with annuities. Invest as much as you want, whenever you want, and receive the tax deferred benefits.
Inheritance and Gifts
Some annuities can provide additional benefits to your loved ones. You can bequeath money to loved ones, while avoiding estate/death taxes. You can also provide tax-free “gifts” of up to $10k/year, per individual, tax free.
Variable annuities can offer you much of the freedom you would have if you invested in individual securities on your own. The only difference is the freedom of payout schedule, but that is the price you pay for the tax benefits (which can be major) of annuities.