An annuity can be a powerful tool in any retirement plan to ensure steady and reliable income or growth without the risk of losing principal or outliving your money.
The two main types of annuities that achieve safety and stability are Fixed Annuities and Fixed Index Annuities.
Fixed Annuity
The cornerstone of the fixed annuity world is a Multi-Year Guarantee Annuity (MYGA).
A Multi-Year Guaranteed Annuity (MYGA) will offer the annuity owner a stable, guaranteed return over the contract’s life. Often described as a CD-like annuity, a Multi-Year Guaranteed Annuity usually has a duration of 2,5,7 or 10 years. The interest rate is guaranteed for 2,5,7 or 10 years. MYGA’s offer much higher interest rates than CDs and are backed by the individual insurance company. (I have a video explaining it)
Fixed Index Annuity
Fixed Index Annuity has a fixed interest contract base with different indexing strategies to capture higher interest gains. In this type of contract, monies allocated to the indexing options will not participate directly in the market or index.
What is an index, and how does it work? An index is a collection of stocks from a specific sector or collection of market sectors intended to provide diversification and represent a broad market segment. While the index does follow the market, as an investor in fixed index annuities, your money is never directly exposed to the stock market.
The stability offered by Fixed Index Annuity is a “floor” for the worst-case scenario. What do I mean? As an index rises, the index annuity participates in the upside of those gains. Whereas, if an index does poorly in the market and goes negative, your contract principle and credited interest do not lose value. For example:
While a 0% interest rate would not be great, it is much better than losing principle in a downward market trend. A Fixed Index does offer the stability factor by guaranteeing that your original principal and credited interest is protected. One of the main advantages of a Fixed Index Annuity is that it will provide an opportunity to participate in considerably higher interest rate gains than an MYGA.
Income Annuities
While all annuities offer settlement options for lifetime income, some annuity products focus on maximizing that income potential. Today many Fixed Index Annuities offer a Guaranteed Lifetime Withdraw Benefit. These optional benefits provide income for the life of a single or joint life. This feature pays you a percentage of your accumulated investment for the rest of your life, consistent and guaranteed payment for the rest of your life!
Other income annuity vehicles include Single Premium Immediate Annuity and Deferred Income Annuities. What are the differences between an SPIA and a DIA? The difference, as the names suggest, is when the income payments start. An immediate annuity (SPIA) would start receiving income within 12 months of the investment date. A deferred annuity would start payments at a future date, usually more than two years from the investment date. During payout phases, contracts are still receiving interest credits.
The right annuity and payment choice for you as an individual has many factors. Working with an independent professional, like Senior Legacy Partners, ensures that your interest is the number one priority. We will help ensure you find the right fit to maximize your guaranteed income. An annuity can be a powerful tool in any retirement plan to ensure steady and reliable income or growth without the risk of losing principal or outliving your money.
If you question how these products might fit into your retirement plan, please feel free to contact us. I hope this general overview of the type of products and their use cases is helpful. Dispelling some of the myths and misnomers around annuities is needed as this product can significantly benefit many retirees. As always, Senior Legacy Partners would be happy to discuss your situation with you.