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Annuities are insurance products that can be important in your overall retirement portfolio. Fixed index annuities, also known as FIAs, are sold by licensed insurance professionals who can help you find the right approach to achieve your retirement goals.
Here are answers to some frequently asked questions to help you better understand these products.
1. Do I need a large amount of money to purchase an annuity?
Many annuity contracts can be purchased with as little as a $5,000 minimum. The minimum purchase amount varies by product and insurance company. If you are interested in purchasing a fixed index annuity, talk to your financial professional about how to achieve your financial goals.
2. Are annuities too complicated to understand?
Annuities are not as complicated as you may think. An annuity is simply a contract between you and an insurance company. In exchange for an initial, or in some cases, recurring payment, called a premium, the insurance company promises to make a series of payments to you either immediately (an immediate annuity), or at some point in the future (a deferred annuity).
The value of deferred annuities grows during the accumulation period. After the accumulation period, regular payments are made to you during the payout period. How interest accumulates during the accumulation period differs depending on whether the annuity is a fixed, fixed index or variable annuity.
Fixed index annuities offer growth potential while protecting your principal from market volatility. Plus, they offer a steady stream of income you cannot outlive. According to an Insured Retirement Institute study, eight in 10 baby boomers surveyed believe it is very or somewhat important for income sources to be guaranteed for life. And, they most frequently rate guaranteed income and guarantee of principal as the two most important traits of a retirement asset, pulling ahead of traits such as rate of return and past performance.
3. Do you have to be a certain age to purchase an annuity?
Some annuity products have certain age restrictions and some don’t. But, there is an important age to remember concerning annuities. Generally, and subject to certain exceptions, if you withdraw money from an annuity before you reach age 59½, you may have to pay an additional 10 percent tax on your funds.
Many people purchase annuities closer to their retirement age to avoid incurring this financial cost. Consult a financial professional if you have questions about age requirements.
4. What is the difference between a fixed annuity and fixed index annuity?
In a traditional fixed annuity, interest accumulates based on a fixed interest rate guaranteed for a set period of time. A fixed annuity can help offer the benefits of steady and consistent growth with the locked-in interest rate, especially during times of high volatility.
In a fixed index annuity, potential for additional interest is linked to the return of an index,, such as the S&P 500® Index. The S&P 500® is well-known and popular throughout the industry and also measures the market performance of 500 largest publicly-traded companies listed on stock exchanges within the U.S.
A benefit to the fixed index annuity is, even if the index selected performs poorly within the market, interest can never be lost once credited to the annuity contract.
5. Are there tax benefits to an FIA?
In most cases, fixed index annuities offer tax-deferred growth, which means taxes are not owed until a withdrawal is made. Ask your tax professional any questions about tax impact if you are interested in purchasing an FIA.
6. Do fixed index annuities invest in the stock market?
Fixed index annuities are considered insurance products and are not directly tied to or invested in the stock market. While these products aren’t directly invested in the stock market, interest earned is based on an external equity or bond index. Interest credited will never be less than zero and can never be lost due to market volatility.
Some common indexes used are S&P 500® Index and Dow Jones Industrial Average®(DJIA).
7. How can I access money within an annuity?
This depends on the type of annuity you have. Are you hoping to receive payments right away or still saving for the future? If you purchase an immediate annuity, you will begin receiving regular annuity payments within the first contract year.
If you purchase a deferred annuity, typically your annuity payments won’t begin until sometime after the first contract year. With a deferred annuity, you still typically have access to money at any time, but you may have to pay applicable surrender charges if you withdraw money within the surrender charge period.
Some annuities allow you to withdraw a specified percentage each year without incurring a surrender charge. This penalty-free amount differs by product and by insurance company.
Again, if you withdraw funds from a deferred annuity before you reach age 59½, you may have to pay an additional tax on those funds. You should consult a tax professional for additional information on the tax consequences of withdrawing funds from an annuity at any age.
8. What is the difference between a fixed index annuity and a variable annuity?
Fixed index annuities are a type of fixed annuity that earns interest based on changes in a market index, which measures how the market or part of the market performs. The interest rate is guaranteed to never be less than zero, even if the market goes down.
Variable annuities earn investment returns based on the performance of the investment portfolios, known as “subaccounts,” where you choose to put your money. The return earned in a variable annuity isn’t guaranteed. The value of the subaccounts you choose could go up or down. If they go up, you could make money, but if they go down, you could lose money.
9. How are annuities regulated?
All annuities are regulated at the state level by each state’s insurance commissioners. And, since variable annuities are considered securities, they are also regulated at the federal level by the U.S. Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA).
10. How will I know what type of annuity works best for me?
Every retirement is different, and your goals for your golden years will be different than the person next to you.
When choosing the right product, you will have to consider when you want your payments to begin, risk factors, potential market volatility for certain products and tax requirements.
When re色盒直播ing annuities, it’s about how you want to secure a financially independent future in retirement with products designed to protect assets while allowing for growth opportunities and reliable income streams. It is important to remember annuities are backed by the insurer that issues the contract and are regulated by state law.
There is a lot to consider when it comes to planning for your retirement. Talk to your financial professional about retirement planning solutions that meet your needs and the benefits that mean most to you.
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