Saving with Annuities
Whether your goal is saving for retirement or you've already reached that goal and you want to be sure that you will never outlive your savings, an annuity may be just what you're looking for. If you are accumulating savings for your child's college education, the purchase of an annuity can bolster the amount of money you're putting away.
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Types of Annuities to Help with Savings
There are two primary types of annuities. One is a deferred annuity, a type of long-term personal savings account, which allows you to save and invest on a tax-deferred basis with an option to receive a stream of income at a later date. The other is an immediate annuity, which provides regular income payments right away or within a short time afterward.
A Deferred Annuity as a Long-term Savings Vehicle
A deferred annuity has two phases: the savings and investing phase, and the retirement income phase. During the savings and investing phase, your assets are accumulated for potential growth. During the retirement income phase, you have a choice of how to structure the income you've accumulated. You can choose systematic withdrawals, take income as you need it, or convert your savings into a series of steady income payments. You can elect to receive these payments for a set time period, or can choose a guaranteed income for life, depending on your savings goals. Deferred annuities fall into two main categories: CD and traditional fixed deferred annuities.
- CD annuity — This type of fixed annuity guarantees a level interest rate for each year up to 10 years. Somewhat like a Certificate of Deposit you can buy at a bank, this annuity guarantees a fixed interest rate for a specified period of time which you determine at the time you set up your annuity (known as the "rate guarantee period"). Your interest rate does not change for the duration of the rate guarantee period you've selected. Click here to view our current interest rates for CD-type fixed annuities.
- Traditional fixed deferred annuity — A traditional fixed deferred annuity, sometimes referred to as an annually renewable deferred annuity, earns an interest rate which is reset each year at the discretion of the insurance company. This annuity is different than the CD annuity described above, in that the interest rate you earn on your pension funded deposit each year can fluctuate both up and down. With a CD annuity, your interest rate does not change for the duration of the rate guarantee period you've selected.
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When you're ready to receive income, generally in retirement, annuities can provide you with a variety of income choices, including a guaranteed income that you can never outlive. In addition, if you die before income payments begin, many variable annuities provide a death benefit that guarantees your beneficiaries will never receive less than the amount contributed to the contract, less any withdrawals or fees.