Annuities
Annuities are a financial product that provides a stream of payments to an individual, either immediately or at a future date. It's often used as a tool for retirement planning, where you invest a lump sum or make a series of payments, and in return, receive regular income either for a set period or for the rest of your life. Annuities can offer tax-deferred growth and can be structured to provide guaranteed income, helping protect against the risk of outliving your savings.
Annuities serve two main purposes: accumulation and distribution. During the accumulation phase, your contributions can grow tax-deferred, meaning you won’t pay taxes on earnings until you start receiving payouts. During the distribution phase, the annuity pays out income, which can be structured to last for a specific number of years or even for the rest of your life offering peace of mind and protection against the risk of outliving your savings.
How Annuities Preserve Wealth
Annuities can play a key role in both accumulating and preserving wealth, especially as part of a long-term retirement strategy. During the accumulation phase, annuities allow your money to grow tax-deferred, meaning you won’t pay taxes on interest or investment gains until you withdraw the funds. This can accelerate growth over time and help you build a larger financial cushion. Fixed indexed annuities are particularly valuable for accumulation because they offer growth potential with principal protection, shielding your savings from market loss. Later, these accumulated funds can be converted into guaranteed lifetime income, ensuring you don’t outlive your money. With the right structure, annuities can help you grow and preserving your wealth safely while providing a stable foundation for lifelong financial security.
Types of Annuities
1. Accumulation Annuity
An accumulation annuity is a type of annuity designed to help you grow your money over time on a tax-deferred basis. During the accumulation phase, you contribute either a lump sum or a series of payments, and your money grows based on the type of annuity—fixed, indexed, or variable. The focus of an accumulation annuity is wealth growth, not immediate income. It's commonly used by individuals planning for retirement who want to build a safe, long-term financial reserve before converting it into income later.
2. Guaranteed Lifetime Income Annuity
A guaranteed lifetime income annuity is designed to provide steady, reliable income for the rest of your life, no matter how long you live. After you invest, the insurance company guarantees regular payments either immediately (in an immediate annuity) or in the future (in a deferred annuity). This type of annuity helps protect against the risk of outliving your savings, known as longevity risk, and offers financial security in retirement. It's an ideal option for those seeking predictable, lifelong income, especially when combined with Social Security or pension benefits.