In its most general sense, an annuity is an agreement for one person or organization to pay another a stream or series of payments. Usually the term “annuity” relates to a contract between you and a life insurance company, but a charity or a trust can take the place of the insurance company.
Annuities are not standardized, and they have many different features, benefits, and purposes.
✔ Nature of the underlying investment – fixed or variable
✔ Primary purpose – accumulation or pay-out (deferred or immediate)
✔ Nature of pay-out commitment – fixed period, fixed amount, or lifetime
✔ Tax status – qualified or nonqualified
✔ Premium payment arrangement – single premium or flexible premium
Fixed Indexed Annuities have the best features of the other types of annuities, they are linked to an index, not invested in actual investments. If the index goes up you earn money, if the index goes down the principal is guaranteed.
✔ Guaranteed income stream, for one or two lifetimes.
✔ Diversification of portfolio, designed for the long term, you have the ability to select multiple indexes.
✔ Your principal is secure, if the market goes down your money is safe. In 2008, folks that had annuities did not lose a penny.
✔ Predictable earnings, folks feel comfortable taking income from a guaranteed source. This will be constant, the funds in your investments will go up and down.
✔ Tax deferred Growth you are not taxed on the earnings in the annuity until you begin to withdraw.
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