What is Annuities?
An annuity is a type of savings plan that can be used to accumulate assets on a tax-deferred basis for retirement and/or to convert retirement assets into a stream of income.
While an annuity is an insurance contract and benefits from all the guarantees and security that an insurance policy provides, an annuity is, in reality, the opposite of traditional life insurance:
- Life insurance provides financial protection against the risk of dying too soon
- An annuity provides financial protection against the risk of living too long and running out of income during retirement years
There are two basic types of annuities:
- Deferred Annuities. A deferred annuity has two distinct phases: the accumulation phase and the income phase. During the accumulation phase, a client will contribute premiums to the annuity, where their savings accumulates on a tax deferred basis until needed for income purposes.
- Immediate Income Annuities. An immediate income annuity is purchased with a single premium and income payments begin immediately or shortly after the premium is paid.