Variable Annuities

Deferred variable annuities are a type of annuity whose credited return varies according to the investment performance of a portfolio selected by the holder(s). Investment vehicles include equity mutual funds, bond funds and money-market funds. Variable annuities also include options and riders embodying minimum guarantees for returns, income and withdrawals. A variable annuity is a security whose issue is accompanied by a prospectus.

Variable annuities are suitable for individuals seeking growth in their portfolio and possessing a strong tolerance for risk.

Afixed deferred annuity is a type of annuity that pays a fixed, guaranteed rate of interest for an initial part of the accumulation period. Subsequently, the fixed rate may change in accordance with market conditions. There will be a minimum guaranteed rate. A death benefit feature is available.


Theindexed annuity, also known as an equity indexed annuity, or a fixed indexed annuity, can be thought of as sitting in the financial territory between the fixed annuity and the variable annuity.

Like a fixed annuity, an indexed annuity offers a minimum, fixed guaranteed rate of return.

Like a variable annuity, an indexed annuity has upside potential, because it is tied to the performance of a stock index, such as the S&P 500.


Indexed Annuities

Indexed annuities are a type of annuity whose credited interest rate is tied to an index of economic performance, usually an equity index like the Standard & Poor’s 500. Indexing allows the annuity holder to participate in market gains while limiting fluctuations in value to changes in a broad index. Indexed annuities contain minimum guarantees for credited interest and income. They limit the degree to which changes in the index cause changes in the credited interest rate and also specify the time periods used to calculate index changes.

Indexed annuities are a hybrid of fixed and variable annuities, but closer to the former in the risk/return spectrum. Although most indexed annuities are not securities today, they will be classified as such beginning in January, 2011.

A fixed annuity works much like a certificate ofdeposit (CD). Interest is credited annually based on a declared rate by the insurance company. Some insurance companies will offer a higher rate in the early years of an annuity contract but reserve the right to drop the interest rate down to contractual minimums in the later years.  A fixed annuity is commonly purchased at or near retirement and is comparable to a high-grade fixed-income security in its risk/return characteristics

The main features and benefits of a fixed annuity are safety of principal, tax-deferred growth and the ability to access funds within the fixed annuity with some limitations. A majority of people who are using fixed annuities in their retirement planning are interested in safety of principal. Because fixed annuities earn a fixed rate of return each year, they are not based on the stock market or any other volatile index. Annuity owners enjoy knowing that they cannot and will not lose money. Annuity owners also enjoy tax deferred growth, meaning they don't have to pay tax each year such as a CD owner does. Annuity owners enjoy triple compounding, which means that they are earning interest on their principal, interest on the interest they earn, and interest on money they might have had to pay in taxes if they weren't using a tax-deferred product. Many insurance companies will also allow annuity owners to withdraw up to 10 percent a year without incurring any charges.


Deferred Annuities
Deferred annuity: this allows you to save in a tax efficient way, usually for retirement. You accumulate a lump sum, which you can either keep or annuitize – effectively converting its behavior into an immediate annuity.

Deferred Annuities

Deferred annuities are types of annuities that are purchased with regular, periodic payments lasting for years. The payments are compiled and invested by the insurance company; this interval of payment and investment is called the accumulation period. Distributions begin only at the conclusion of the accumulation period. Unlike immediate annuities, deferred annuities allow the holder(s) to save for retirement rather than being forced to purchase the annuity at once.

Immediate Annuities
Immediate annuity: you make a lump sum payment to an insurance company. In return, they provide you with a stream of regular payments – traditionally until the end of your life, but other timescales are possible.

Immediate Annuities

Immediate annuities are types of annuities that provide income to the holder(s) – in the form of disbursements called distributions – soon after payment is received by the insurance company. The payment is made in a single lump sum.

A typical buyer of an immediate annuity is a retiree who uses his or her accumulated savings to purchase an annuity to provide a supplimental income stream.

Annuities:


An annuity is a contract between one or more individuals and an insurance company. In exchange for payment, the insurance company agrees to provide regular, periodic income to the individual(s).

An annuity can provide a stream of income that the holder cannot outlive. This unique attribute makes it especially attractive as an asset to fund retirement. Investment gains inside annuities accumulate and compound tax-deferred – a highly advantageous characteristic. Withdrawals from an annuity made by individuals younger than age 59 ½ are subject to a 10% penalty levied by the IRS. Annuities normally carry surrender charges that penalize early withdrawals above the level specified in the annuity contract. The investment-gain component of an annuity distribution is taxed as ordinary income.


Although annuities are investment contracts rather than insurance policies, they typically contain insurance features such as death benefits and minimum guarantees.



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