Indexed Annuities
Indexed annuities offer a middle ground. Your returns are tied to a market index, like the S&P 500, but with a safety net. You won’t lose money if the market tanks, but your gains are usually capped.
Pros of Indexed Annuities
- Growth with Protection: You get the chance for higher returns without the risk of losing your principal.
- Tax Deferral: Like other annuities, the earnings grow tax-deferred.
Cons of Indexed Annuities
- Complexity: The rules for how gains are calculated can be complicated.
- Caps and Limits: Your earnings are often capped, limiting your potential upside.
Annuity Payout Options: How and When You Get Paid
Immediate vs. Deferred Annuities
An immediate annuity starts paying you right away, typically within a year of your initial investment. On the other hand, a deferred annuity delays payments until a future date, allowing your investment to grow over time.
Lifetime vs. Period Certain
A lifetime annuity guarantees payments for as long as you live, while a period certain annuity pays you for a specific number of years. There’s also the option of a combination: lifetime with a period certain, which pays for life but guarantees a minimum number of payments.
Single Life vs. Joint Life
Single life annuities pay out for the lifetime of one person—typically the buyer. Joint life annuities, however, continue payments as long as one of two people (usually spouses) is still alive.
The Role of Riders: Customizing Your Annuity
What Are Riders?
Riders are optional features you can add to an annuity for an extra cost. They’re like add-ons that enhance your basic annuity, offering additional benefits tailored to your needs.
Common Annuity Riders
Guaranteed Minimum Withdrawal Benefit (GMWB)
This rider ensures that you can withdraw a certain percentage of your investment each year, regardless of how your investments perform. It’s like a safety net for your retirement income.
Long-Term Care Rider
Some annuities offer a rider that increases your payments if you need long-term care, helping cover the costs of nursing homes or in-home care.
Death Benefit Rider
A death benefit rider ensures that your beneficiaries receive a payout if you pass away before you’ve received your entire investment back.