An annuity is a contract between you and an insurance company. These safe and insured investments provide tax-deferred growth, guaranteed income, or both.
Whether you are approaching retirement, rolling over an IRA, or looking for a safe alternative to CDs and money markets, annuity accounts offer flexible, insured solutions tailored to your financial goals.
As an independent brokerage, Hyers & Associates compares options from dozens of insurance companies to find the policy that best fits your situation.
There are several types of accounts available depending on your needs and goals. Fixed, indexed, income, immediate, deferred, bonus, variable, and structured annuities are most common.
Annuities are used for growth, as savings vehicles, and/or to provide guaranteed income. Oftentimes, annuity accounts serve multiple purposes. They might defer gains now to create income during retirement. We help our clients explore all of their options.
Annuities are popular with investors for a variety of reasons. Consumers like their predictable returns, protection of principal, tax deferral, and systematic income. Annuity insurance contracts are commonly used to provide guaranteed future income streams.
Annuities also offer significant tax advantages. Bank certificates of deposit and savings accounts are taxable when interest is not withdrawn. Non-qualified annuities grow tax-deferred, lessening taxable income for their owners.
Interest compounds daily with many annuities, helping to increase growth. When desired, principal and interest gains can be annuitized for a guaranteed stream of income during retirement. Deferred income annuities are often used to create lifetime income.
Albert Einstein said compounding interest was one of the great inventions of the modern world. He understood that this simple and powerful concept was an important key to wealth accumulation.
*A qualified annuity (IRA or 403b) may require a mandatory distribution at age 70 and 1/2. You should always consult your accountant for tax advice.
Annuity accounts are flexible. Maturity terms range from just a few months to several years. An account with a longer maturity usually offers a higher interest guarantee and/or premium bonus. Many insurance companies offer 1st year premium bonuses between 5-10% for terms longer than 10 years.
Some annuities allow owners to add funds during their term without restarting the surrender period. And many contracts allow for systematic interest withdrawals on a monthly, quarterly, semi-annual, or annual basis without penalty. Unlike bank CDs, annuity accounts offer access to your principal during the maturity period, usually 5-10% of the account value if needed.
There are several liquidity features included with most contracts. Funds can be withdrawn systematically, as needed or if health issues arise. In fact, some policies waive surrender penalties and/or increase income payments when the owner needs long term care benefits.
Not all annuities work the same way. Here is a clear overview of the most common types and what each option is best suited for.
Fixed annuities pay a guaranteed interest rate for a set term — typically one to ten years. They are the simplest and safest option, functioning similarly to a bank CD but with tax-deferred growth and often higher yields. View current fixed annuity rates →
Fixed indexed annuities (FIAs) link your interest credits to a market index like the S&P 500, while protecting your principal from market losses. You won’t capture all of the market’s upside, but you will never lose money due to market performance. Many FIAs also offer substantial first-year premium bonuses and guaranteed income riders. Explore fixed indexed annuities →
Immediate annuities convert a lump sum into a guaranteed income stream that begins within 30 days. They are commonly used by retirees who need a predictable monthly income right away. Learn about immediate annuities →
Deferred income annuities let you lock in a future income start date — often 5, 10, or even 20 years out — in exchange for a lump sum or series of payments today. Income can be for a set number of years or for a lifetime. The longer you defer, the larger the future income stream. Explore deferred income annuities →
Hybrid annuities combine growth or income features with long-term care benefits. If you need nursing home care, assisted living, home health care, or similar services, the policy will increase your income payments or provide care benefits. Learn about hybrid annuities →
Bonus annuities credit a premium bonus — sometimes 10% to 50% of your deposit — in the first year or over multiple years. These are particularly useful for consumers rolling out of underperforming variable annuities or mutual funds. See the highest annuity bonus accounts →
There are two common myths concerning annuity insurance contracts. The first is that you have little access to your principal during the maturity period. The second is that the insurance company can keep your funds upon your death. These are not true.
Another common myth is that annuities have high fees. They do pay a commission to the agent, but that amount never reduces your invested principal. Most annuities work on spreads – just like bank deposits. If the fixed account offers 6%, then the internal rate of return is higher – maybe 6.25%. That extra .25% is used to cover the insurance company’s daily operations and to compensate the agent.
Tax-deferred annuities are all around you. Many state retirement plans, like the Public Employee Retirement System and the State Teachers Retirement System, offer these contracts to their employees. Every year, billions of dollars from individuals and employers flow into annuity accounts for many of the above mentioned reasons.
Did you know:
- Total annuity assets under management are over 9 trillion dollars
- Sales of fixed-income annuities have tripled over the last decade
- Over 48% of households own an annuity account in some form
- Over 40% of annuity buyers cite regular income as a primary reason for purchase
- Others point to safety and guaranteed annuity interest rates
- Ownership is split nearly evenly between males and females
There are several different types of annuities available for purchase. One size does not fit all. Annuity accounts can be used to diversify your portfolio, reduce taxes, provide a systematic income, and safeguard your estate.
The bottom line is annuity insurance contracts are appropriate in many instances. Annuities safely provide reliable returns, monthly interest, lifetime income, tax-deferred growth, safety of principal, and most importantly, peace of mind.
Contact us today to learn if a policy is suitable for your investment planning.
