Choices to Consider when Choosing an Annuity
When shopping for an annuity, there are several considerations that must be weighed.
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Fixed vs. Variable
Fixed annuity owners appreciate stability. Owners of fixed contracts know exactly how much their contract is earning, and when interest will be credited. Fixed annuities offer assurances that you just cannot find anywhere else.
However, for those that believe they can "do one better" than the insurance company's interest rate, then a variable annuity may be an option. Variable annuities allow you to enjoy the upside of the market. Plus, some insurers minimize downside risk by guaranteeing that your annuity value will not decrease below your initial premium.
Some annuities are also designed to mimic the performance of the market, such as the S&P 500. These so-called "indexed annuities" provide an easy way to track performance, since market figures are readily available via the press.
Immediate vs. Deferred Income
When it comes time to withdraw your money out of an annuity, you have a variety of payment options to choose from. The insurance company can pay you either in a lump sum, make periodic payments, or guarantee you a lifetime of income on a tax-advantaged basis. Depending on the annuity contract you purchase, the choice is yours.
Qualified vs. Non-Qualified
Annuities can accomodate qualified or non-qualified money. For instance, suppose you are switching jobs and need to move over a 401(k). However, you already have an IRA and are looking to diversify your portfolio. You can reduce your portfolio exposure by rolling into an annuity, and not be forced to lose your money's tax advantages.
In another scenario, suppose you receive an inheritance of $20,000. If you don't need the money right away and want to build a long-term nest egg, consider putting the inheritance into an annuity. You'll gain the advantage of tax-deferral. Plus, when it comes time to withdraw from your non-qualified annuity, you'll only be taxed on the accumulated interest, not the principal itself.
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The quality of the insurance company is important, especially when purchasing a fixed annuity. Working with a respected, highly-rated insurer can help eliminate default risk, and ensure a retirement income when you need it most.
Variable annuities, unlike fixed annuities, are not commingled in the insurer's general fund. The separate accounts inside a variable annuity provide an extra hedge of protection should the insurance company run into problems. Nevertheless, the quality of the insurer is vital, especially if your variable annuity has any additional death benefits or rate guarantees.
Always examine the ratings of an insurer to determine if they are rated "Superior" or better. For more assistance in finding the latest ratings, be sure to contact a SaveWealth Annuity Specialist.