Other Insurance

At Partners Central we specialize in helping clients with Retirement Strategies using Fixed and Indexed Annuities.

We help educate our clients so they fully understand their options, benefits, and cost associated with each strategy. If you're looking to reduce your longevity risk as well as lock in your monthly income for life with a portion of your retirement portfolio Partners Central can help.

Annuities are a good investment if you are buying them for the right reasons.

You can buy annuities for safety, long-term growth, or income. For example, a fixed annuity might make an attractive alternative to a CD; a variable annuity might be bought for long-term, tax-ed deferred growth; and an immediate annuity is bought for income purposes.

When an Annuity Is a Good Investment

First and foremost, an annuity is an insurance product, which means you buy it to reduce risk. Some annuities, like variable annuities, have a selection of stock and bond portfolios available as investment choices inside the insurance contract. Other annuities are true insurance with no investment component at all.

There is one thing an annuity can do well, which is to provide a hedge against longevity risk (the risk of living far longer than you thought you would). If you are buying it for that reason, an annuity can be a good investment.

An annuity might be the perfect investment choice for you if you know your retirement goal, can see how the annuity helps you accomplish those goals, and understand all the fees and restrictions of the annuity product you are considering. You should understand how the annuity income is taxed when payout begins, what investment options are available, and how the annuity complements other investments you have.

When an Annuity Is Not a Good Investment

If someone is trying to sell you an annuity without looking at your entire financial picture, be cautious. Many people selling annuities mean well, but they may not have a thorough understanding of the products they are selling. They may not have a good grasp on the tax implications, and if they haven't done any planning for you, they can't see how that product is going to fit into your retirement picture.

You also want to be aware of the fees associated with the annuity because high fees lower your return.

Different Annuity Types

Fixed Annuity

This is the option with the least risk and the most predictability. Fixed Annuities come with a guaranteed, set interest rate that doesn’t vary beyond the terms of the contract. While other investments might soar or dive, the fixed annuity is steady. Sometimes, however, the interest rate will reset after a predetermined number of years.

Variable Annuity

A variable Annuities comes with more risks and potentially higher rewards. The interest rate of variable annuities is tied to an investment portfolio. This kind of annuity carries the potential for a higher payout if the portfolio does well, but also can take a hit if your investment portfolio doesn’t do well.

Indexed Annuity

Indexed Annuities, also known as equity-indexed annuities and fixed-indexed insurance products, have characteristics of both fixed and variable annuities. It’s a way to balance the risks and rewards, carrying lower risks than variable annuities and higher income potential than fixed annuities. So the interest rate won’t sink below a preset amount. But the rate is also tied to a specified index, such as a stock market index, and can rise higher than a fixed annuity. The tradeoff is this kind of annuity also comes with higher costs and fees. And the methods for calculating interest are complex.

Annuity Payout Options

Another classification relates to when the annuity holder will start receiving payments.

Immediate Annuity (AKA Income Annuity)

With an Immediate annuity, also known as an income annuity, the annuity holder begins receiving payments within a year after purchasing it. An example of this might be if someone wins a lottery or receives a large inheritance. The person may decide to use part of the money to purchase an annuity so he or she can shield part of the windfall from temptation to spend.

Deferred Annuity

With a deferred annuity, the investor receives payments starting at some point later in the future. Typically, this happens when the investor retires. In the meantime, the investment builds, tax-deferred.

How Long Annuities Are Paid

Generally, annuities are considered retirement investments that guarantee the investor won’t outlive his or her funds because they are paid at least until the annuity holder dies. But some annuities are different.

Lifetime Annuities

These are annuities that guarantee an income stream for the annuity holder’s lifetime. In some cases, lifetime annuities allow for a beneficiary to receive payments after the annuitant’s death. With these annuities, the amount of the payment will be set depending on the health and age of the annuity holder.

Tip:

The longer the person is expected to live, the lower the individual payments are likely to be.

This is because the payments are likely to continue longer for younger, healthier people.

Fixed-Period Annuities

An example of a fixed-period annuity, also known as a term-certain annuity, is a lottery prize. In many cases, lottery winners can elect to receive their windfall as an annuity. Those payments are spread out over a fixed period, typically 20 or 30 years. With these annuities, the age and health of the annuity holder are not relevant to the amount of the payments because the number of payments is unaffected.

Thinking about buying an annuity?

A financial expert can talk to you about your specific financial needs and recommend the type of annuity that is right for you.

Set an Appointment Today!

There are numerous other possible ways to design annuity contracts to include provisions for the investor. For example, there are qualified and nonqualified annuities. This refers to whether the annuities are held in qualified retirement accounts and covered by the same laws regarding taxation and withdrawal requirements.

Other options include:

• Life-only annuities pay the length of the annuitant’s life and no longer. However, you can choose provisions that provide for your spouse or even a refund.
• Life annuities with period certain pay a certain number of years even if the annuitant dies before the end of the period.
• Joint and survivor annuities provide payments over the lifetime of both the annuitant and a beneficiary.