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Diversify Your Retirement Strategy With a Guaranteed Annuity

By Richard J. Schillig, CLU, ChFC, LUTCF
Independent Insurance and Financial Advisor

Annuities are financial products offered by life insurance companies that provide safety & guarantees and may offer a steady stream of retirement income. They offer tax-deferred growth potential while you are saving for retirement, and dependable income after you retire – in some cases, income
for life.

What is an annuity? An annuity is simply a contract between you and a life insurance company. You pay the insurance company one or more purchase payments (“premium”). In exchange, you get the benefits the insurance company guarantees from your annuity contract.

Some special annuities have the potential to earn interest based on the growth of an external index (we call this “indexed interest”) and index annuities. Index annuities are considered fixed annuities. You can choose one or more external indexes every year (or “allocation options”), depending on your financial goals. Other types of annuities offer growth potential through variable investment options. These types of annuities are called variable annuities. Guarantees are somewhat limited on the variable annuity.

All annuities offer tax-deferral on growth. You do not pay income taxes on the earnings in your contract until you take money out of your annuity. Tax deferral helps the money in your annuity compound over time – for even greater accumulation potential. Fixed annuities protect the money you place in your contract (the “principal”). Some annuities protect your principal from market downturns, while variable annuities offer greater growth potential in exchange for some market risk, including the risk of losing principal.

After a period-of time specified by your contract, annuities provide guaranteed retirement income. Some annuities let you choose from a variety of income options – and some even offer the opportunity for income increases in retirement. These options may either be built in-to the contract or may be an optional benefit and available for additional cost.
Annuities can help address some common financial concerns, from helping you save for retirement and providing a level of protection for your retirement savings to helping address inflation and longevity.

Annuities are designed to complement other financial products as part of your overall retirement strategy. They offer important features and benefits that can help you accumulate for retirement, supplement your retirement income, and even help diversify your portfolio.

Different types of annuities are available to address your unique financial needs and retirement goals: fixed only, fixed index annuities and variable annuities. Annuities are complex products. It is important to understand the unique features of each. A financial professional can help you decide whether an annuity is appropriate for your needs.
Fixed index annuities in my opinion is the most competitive annuity in that they allow you to share in the growth of the stock market by protecting your principal from market downturns. Fixed index annuities combing the best feature of the variable annuity (growth with stock market) with the best feature of fixed annuity (guarantees). The accumulation value of the fixed index annuity will remain with stock market downturns and increase with stock market increases.
Withdrawals, naturally, will reduce the contract value and the value of any protection benefits. Withdrawals taken within the annuity holding period may be subject to a penalty. All withdrawals are subject to ordinary income tax and, if taken prior to age 59½, may be subject to a 10% federal additional tax.

Annuities are guaranteed by the financial strength and claims-paying ability of the issuing life insurance company. Consequently, the rating of the life insurance company becomes very important to guarantee our accounts. It is critical to determine the financial rating of the life insurance company. Ratings are available from multiple rating agencies such as AM Best, Moodys, Fitch.

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