June 22, 2023

Top Reasons To Buy An Annuity

When it comes to retirement planning, fixed index annuities are a valuable addition to your retirement portfolio – whether you’re looking for income during retirement or want to leave a legacy for your heirs.

Like most retirees, they can no longer afford to recover from a stock market crash. This is the number one reason they move their risky money from their IRAs and 401k to a fixed annuity.

When retirees buy annuities, their principal balance (value of their IRA and 401k is now protected from stock market fluctuation. A fixed-indexed annuity guarantees retirement income with the possibility of increasing but protected from losing value.

Here are some of the top reasons to consider buying an annuity.

Top Ten Reasons To Buying An Annuity?

1. Security of principal investment

Security of principal investment refers to protecting an individual’s initial investment in an annuity. Annuities are considered a secure investment option for several reasons.

Firstly, fixed annuities guarantee that the investor will earn a certain percentage of their principal investment, which is usually low but still ensures that they earn more than their original investment.
Secondly, fixed-indexed annuities offer superior protection during market downturns and the possibility of growth during market upswings, with no risk of loss.
Thirdly, for an annuity with a guaranteed payment rider, the retiree will not experience a sudden 40% drop in income with stock market corrections.
Lastly, annuity and life insurance companies are responsible for paying the promised income, regardless of how long the annuity owner and spouse live.

2. Guaranteed income for life

Annuities are a financial product that can provide guaranteed lifetime income and ensure you are never at risk of outliving your savings. An annuity that provides a steady income stream allows you to live with dignity through retirement.

Here are 5 reasons why buying an annuity which includes the lifetime guarantees income protection rider:

Ensures that you will always have a steady income stream throughout your life.
It mitigates the risk of outliving your retirement savings.
Eliminates the need for managing investments and market fluctuations.
Knowing that you’ll receive a certain income, regardless of how long you live or in market conditions, provides peace of mind.
It offers protection against inflation and ensures your income stream keeps pace with rising living costs.

Taxable amounts that are withdrawn from an annuity are subject to ordinary income tax. With a fixed-indexed annuity, you can rest assured that you will never outlive your savings and can enjoy a comfortable retirement.

3. Long-term care benefits

Long-term care costs, such as those associated with nursing homes, are among the most expensive retirement expenses. Unfortunately, no one can predict when they will need long-term care.

Retirees who can’t afford a long-term care policy have two options: a fixed index annuity and a life insurance policy.

An annuity with a long-term care rider allows penalty-free withdrawals to pay for these expenses. Additionally, certain annuities provide increased payouts to policyholders who become disabled or require long-term care.

Many states allow this rider to be added to an annuity contract, including California, which recently approved the long-term care annuity rider in 2022.

An indexed universal life insurance policy with a long-term care rider can also cover long-term care costs. Depending on your age or medical condition at the time of application, this may or may not be an option.

4. Annuity provider guarantees you won’t outlive your retirement income (401k and IRA investment accounts)

Annuities are a financial product that can provide a guaranteed lifetime income, ensuring you never outlive your retirement savings. This is a key benefit over other retirement accounts like 401k and IRA, which do not offer this guarantee.

Annuities work by providing a lump-sum payment in exchange for a guaranteed income stream for life. Here are the top ten reasons why buying an annuity is a smart financial decision:

No risk of running out of money in retirement
Provides a reliable income stream in retirement alongside your social security payments
Offers peace of mind
Customizable to fit your needs
Guaranteed lifetime income
Diversifies your investment portfolio
It helps manage your investment portfolio
Offers protection against inflation
Provides lifetime income in retirement for spouses
Death benefit for beneficiaries

5. Low investment risk

Annuities are considered low-risk investments as they provide a guaranteed income stream not subject to market losses. Many people buy deferred income annuities as they near retirement to protect their investments.

Integrity Now Insurance Brokers’ financial planners can help you with the various types of annuities to help you achieve your financial goals.

6. Tax-deferred growth

When you contribute funds to an annuity, you won’t owe taxes on the money until you start receiving payments. During that time, your money has the potential to grow significantly, which is similar to how IRAs and 401(k) contributions grow but with the added protections that fixed annuities carry.

Here are some key benefits of tax-deferred growth when purchasing an annuity:

Minimize taxes: An annuity can help minimize the taxes you pay each year by providing additional tax-deferred investment in your portfolio.
Compounding growth: The money inside your annuity will grow at a compounding rate, which can grow your retirement savings over time.
Higher balances: Any earnings on your deferred annuity are tax-deferred, meaning the taxes you’d typically owe on the capital gains each year remain in your account and grow.

7. Monthly income does NOT decrease with stock market losses

When buying an annuity, monthly income does not decrease with stock market losses. This is because the amount of money you will receive is agreed upon at the time of purchase, and it remains the same even if the stock market were to crash.

When you get an annuity, you know exactly how much you will receive when you receive your retirement income. Annuities take the guesswork out of your retirement planning.

8. Joint survivor lifetime benefits

After you pass, you may need an annuity covering your retirement and your spouse’s income. Joint survivor lifetime benefits are an essential feature of many annuities that provide financial security for the annuitant and their spouse or partner.

While the annuity payout will be slightly decreased, including a joint survivor lifetime benefit rider far outweigh the slight reduction in annual annuity payments.

9. Ability to choose a beneficiary

One of the top reasons to consider buying an annuity is the ability to choose a beneficiary. By naming a beneficiary, you can provide financial security for loved ones and avoid probate.

Here are some benefits of being able to choose a beneficiary:

Pass on your annuity to one or more named beneficiaries when you die.
Your contract may provide for a minimum number of payments for your beneficiaries.
Funds may be distributed as a lump sum or a stream of payments.
With a joint and survivor annuity, your spouse can assume ownership of the annuity when you die.
Protect your heirs from having to go through probate.

10. Guards assets from creditors and bankruptcy

An annuity is a contract with an insurance company that can help guard your assets against creditors and bankruptcy in several ways.

Creditors can only obtain the payments from an immediate annuity as the funds given to the insurance company are now owned by the company, hence limiting their access.
Some state laws and judicial rulings safeguard certain, or all payments received through annuities.

Overview Of Annuity Types

	Variable Annuity	Fixed Index Annuity	Fixed Annuity	Immediate Annuity	Deferred Income Annuity
Principal Protection	No	Yes	Yes	Yes	Yes
Access To Principal	Yes	Yes	Yes	No	No
Control Over Money	Yes	Yes	Yes	No	No
Control Over Money	Yes	Yes	Yes	No	No
Tax-Deferred Growth	Yes	Yes	Yes	No	No
Guaranteed Growth	No	Yes	Yes	No	No
Guaranteed Income	Yes	Yes	Yes	Yes	Yes
Inflation Protection	Yes	Yes	No	Yes	Yes
Death Benefit	Yes	Yes	Yes	Yes/No	Yes/No
Long-Term Care Benefits	Yes	Yes	Yes	No	No

5 Types Of Annuities To Choose From

1. Immediate and Deferred Annuities

Immediate annuities begin paying out immediately after the contract is purchased, while deferred annuities start paying out later.

Both are designed to provide a guaranteed source of income during retirement. Still, immediate annuities may appeal more to those who need income immediately, while deferred annuities may be better suited for those who want to accumulate funds over time.

2. Fixed Annuity

Fixed annuities are a type of annuity that offers a guaranteed rate of return with a minimum rate that never falls below a certain amount. They are designed to provide a reliable source of income during retirement.

Here are some key features of fixed annuities:

Guaranteed interest rates: Fixed annuities offer a guaranteed rate of interest that lasts for a certain period, typically a year or longer. This rate is fixed and does not fluctuate with market conditions.
Tax-deferred growth: The interest earned on fixed annuities is tax-deferred, meaning that taxes are not paid until the funds are withdrawn.
Low risk: Fixed annuities are considered low-risk investments because they are not subject to market fluctuations. The return on investment is guaranteed, and the principal is protected.

3. Fixed Index Annuity

A Fixed Index Annuity is a type of annuity that combines features of both fixed and variable annuities. It offers a guaranteed minimum rate of return, while also allowing for the potential to earn interest based on the performance of a stock market index.

This type of annuity can be a good option for investors who want to protect their principal while also having growth potential.

Fixed Index Annuities also offer a variety of features, including:

A guaranteed minimum rate of return: Even if the index performs poorly, the annuity company guarantees a minimum rate of return.
Tax-deferred growth: You don’t pay taxes on the earnings until you withdraw the money.
Protection of principal: Your principal is protected from market downturns, so you don’t have to worry about losing money in a market crash.
Flexible payout options: You can receive payments for a specific period or the rest of your life.
Death benefit: If you pass away before receiving your payments, your beneficiaries will receive the remaining balance.
Long-term care rider: Provides additional benefits when a doctor certifies that the insured person cannot perform two or more activities of daily living such as eating, bathing, dressing, toileting, continence, and transferring.

4. Variable Annuity

A variable annuity allows investors to direct their payments to different investment options, usually mutual funds, and offers growth potential based on investment performance. The payout of a variable annuity depends on the amount invested, the rate of return on the investments, and expenses.

Variable annuities provide professional money-management features, such as periodic portfolio rebalancing, to investors who prefer leaving the work to someone else. Variable annuities offer the most opportunity for growth and typically provide hundreds of potential investments with their contracts, including bond funds, large-cap stock funds, small-cap stock funds, and more.

Variable annuities do include the highest fees, which can quickly erode your retirement income when the market is flat for a number of years or falling.

5. Long-Term Care Planning Annuity

A Long-Term Care Planning Annuity is a type of annuity that can provide financial security for individuals who may require long-term care in the future.

Long-term care riders are an option in many annuity contracts. They provide insurance against the expenses of long-term care should you need it.

The Long-Term Care Planning Annuity allows individuals to invest a lump sum in exchange for a guaranteed income stream for life. The income received depends on the initial investment, age, and other factors.

Eligibility requirements for this annuity vary by annuity providers, but generally, individuals must be in good health and between 50 and 80. Different options are available to customize the plan to fit individual needs, including inflation protection and joint coverage for spouses.

The advantages of the Long-Term Care Planning Annuity include providing a guaranteed income stream for life, protecting against the high costs of long-term care, and providing peace of mind for the future.

How To Buy An Annuity

Annuities have many benefits, but it is vital to set up the annuity correctly to ensure it meets your expectations. Integrity Now Insurance Brokers annuity consultants review the different kinds of annuity options and will go over the costs of an annuity before you decide to buy an annuity.

Annuities are a popular investment option because they offer a guaranteed income stream and require little ongoing management. Here is a step-by-step guide on how to buy an annuity:

Evaluate your retirement income needs: Our annuity experts will help you determine how much you will need during retirement.
Shop around: As independent annuity agents, we have access to hundreds of annuity providers to ensure you find the best product for your needs.
Choose your annuity: Once you have found a provider and product that meet your needs, choose your annuity. You must decide on the amount of your initial payment, the type of annuity (lifetime or investment-linked), and the payment options (lump sum or series of payments).
Fill out the application: Our annuity professional will help you complete the application for your chosen annuity product.
Receive your annuity contract: Once your application is approved, you will receive a contract outlining the terms of your annuity. Carefully review the agreement to ensure that it matches your expectations and that you understand the terms and conditions.
Make your initial payment: You must make your initial payment to the annuity provider. This can be a single lump sum or a series of payments.
Receive your payments: Once your immediate or deferred annuity is activated, you will receive your agreed income from the annuity provider.

It is important to note that annuities are not suitable for everyone, and there can be surrender charges and/or tax penalties if you access your funds early. Therefore, it is crucial to consider all the options available and consult with a financial services professional before making any decisions.

What is an annuity?

An annuity is a long-term insurance product that provides a guaranteed income, making it a common source of retirement income. An annuity is essentially an insurance and retirement account, a hybrid annuity, that offers various ways to grow your funds, with the insurer making payments to you immediately or in the future.

What are the pros and cons of buying an annuity?

There are different types of annuities, which may have pros and cons depending on the annuity you buy.

The advantages of purchasing an annuity include the security of a fixed annuity income stream, protects your principal, tax-deferred growth, and potential death benefits. However, annuities have disadvantages, such as high fees and lack of liquidity.

Consult one of our financial advisors to discuss if an annuity would be beneficial to invest money in.

How does an annuity work?

Annuities can provide a steady income stream to an individual over a specified period. Annuities work through two life stages: the accumulation and distribution phases.

During the accumulation phase, an individual pays annuity premiums through a lump sum or over a specific period. In the distribution phase, the annuity company starts to pay individual monthly, quarterly, or annual payments according to the annuity contract terms.

Many types of annuities should be included as part of your planning for retirement. Our financial planning department will review what annuities can offer you during retirement.

Why Work With An Annuity Expert

Working with an annuity expert is crucial to securing a financially stable retirement. At Integrity Now Insurance Brokers, we offer the expertise and guidance to ensure you make informed decisions regarding your annuity investments.

Our annuity experts have extensive knowledge and experience in the industry, including the various types, risks, benefits, and taxation. This expertise enables our annuity consultants to match each client’s unique retirement goals and financial situation with the appropriate annuity products.

At our Annuity Insurance Agency, we take the time to get to know our clients and their needs, providing personalized service that ensures confidence in your investments. Our annuity experts will work with you to maximize your annuity yields, manage risks, and minimize taxes while ensuring steady cash flow during retirement.

We also specialize in helping seniors with their Medicare plans. Our California Medicare Agents can help you choose from a Medicare Advantage or Medigap Plan.

Trusting a reputable annuity expert like the Integrity Now Insurance Brokers team will give you peace of mind that your retirement plan is in good hands. So, whether you’re new to annuities or looking to optimize your current annuity portfolio, contact us today and request an annuity quote.