Annuities

What is an Annuity?

Annuities are contractually-executed, relatively low-risk investment products; the insured (usually, an individual) pays a life insurance company a lump-sum premium at the start of the contract. That money is to be paid back to the insured in fixed, incremental amounts, over some future time period (predetermined by the insured). The insurer invests the premium; the resulting profit/return on investment fund the payments received by the insured and compensate the insurer.

Conventional annuity contracts provide a predictable, guaranteed stream of future income (e.g., for retirement) until the death(s) of the beneficiaries(s) named in the contract, or, until a future termination date – whichever occurs first. These financial instruments have been used to accumulate funds and provide significant and sudden increases in personal income (via future, lump-sum withdrawals), all while legally avoiding the taxes (e.g., income-, capital gains-, estate-) that would otherwise be assessed on them.

Pile of cash, representing financial success and wealth

Types of Annuities

Fixed Annuities:

Fixed annuities offer a guaranteed interest rate set by the insurer.
They provide stable, predetermined payments over the life of the contract.
These are often chosen for their reliability and protection against market fluctuations.

Fixed Indexed Annuities:

Fixed indexed annuities link returns to a market index, like the S&P 500.
They offer the potential for higher returns compared to fixed annuities while safeguarding against market losses.
These annuities provide a balance between security and growth potential.

Variable Annuities:

Variable annuities allow policyholders to invest in various sub-accounts similar to mutual funds.
Returns are tied to the performance of these investments, making them subject to market ups and downs.
Variable annuities offer potential for higher returns but come with greater risk and fluctuating payments.

Single Premium Immediate Annuities (SPIAs):

SPIAs involve a single lump-sum payment to the insurance company.
In return, they provide immediate, regular payments, typically starting within a month.
These annuities are suitable for those seeking a predictable income stream without waiting.

Each type of annuity has its unique features, benefits, and considerations. It's essential to choose the one that aligns with your financial goals and risk tolerance.

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Jake Purvis Consulting does not offer tax, legal, or investment advice. Consult with your tax advisor or attorney regarding specific situations. Opinions expressed are subject to change without notice. These opinions are not intended as investment advice, nor do they predict future performance of any product. All information provided is believed to be from reliable sources, however we make no representation or warranty as to the accuracy of any statement. This information is intended to be educational in nature and does not provide a guarantee or a specific result. All copyrights and trademarks are the property of their respective owners. Jake Purvis Consulting assumes no responsibility or liability for the content of this message. The information contained herein is provided on an “as is” basis with no guarantees of completeness, accuracy, usefulness, timeliness or of the results obtained from the use of this information.

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Annuities

What is an Annuity?

Types of Annuities

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