Annuities for Dummies

An annuity is a financial product designed to provide a regular stream of income for a specified period or for the rest of your life. It is typically offered by insurance companies, although other financial institutions may also provide annuities. Annuities can help you by providing a stable income source in retirement, managing longevity risk, and offering potential tax advantages. Here’s a closer look at how annuities work and how they may be able to benefit you:

  1. Regular Income: Annuities offer the advantage of regular income payments, which can be monthly, quarterly, annually, or in any other frequency specified in the contract. This can be particularly beneficial during retirement when you no longer have a steady paycheck.
  2. Retirement Planning: Annuities can be used as a part of your retirement planning strategy. By contributing to an annuity during your working years, you can accumulate funds that can generate a guaranteed income stream in retirement.
  3. Longevity Protection: One significant risk in retirement planning is outliving your savings. Annuities address this risk by providing income that continues for as long as you live, even if you live longer than expected. This feature is known as a “lifetime” or “deferred income” annuity.
  4. Tax Advantages: Annuities offer potential tax advantages. When you contribute to an annuity, your investment grows tax-deferred until you start receiving withdrawals. This can help you accumulate more money over time. Additionally, if you purchase an annuity with after-tax dollars, a portion of each payment you receive is considered a return of principal and is tax-free.
  5. Customization Options: Annuities come in various types, allowing you to choose the one that aligns with your specific financial goals. For example, you can opt for a fixed annuity, which provides a guaranteed interest rate, or a variable annuity, which allows you to invest in a selection of investment options.
  6. Death Benefits: Some annuities offer death benefits, which can provide a financial payout to your beneficiaries if you pass away before annuity payments have started or if the contract value is higher than the accumulated payments received.
  7. Inflation Protection: Certain annuities provide options for inflation protection. These contracts have income payments that increase over time to help keep pace with inflation and maintain your purchasing power.

It’s important to note that annuities may involve fees, surrender charges, and restrictions on access to your money. Before considering an annuity, it’s advisable to carefully review the terms and conditions, understand the costs involved, and consult with a financial advisor who can assess whether an annuity aligns with your specific financial goals and needs.

Insurance products are offered through the insurance business Next Chapter Wealth Strategies, Inc. Next Chapter Wealth Strategies, Inc. is also an Investment Advisory practice that offers products and services through AE Wealth Management, LLC (AEWM), a Registered Investment Advisor. AEWM does not offer insurance products. The insurance products offered by Next Chapter Wealth Strategies, Inc. are not subject to investment Advisor requirements. Investing involves risk including the potential loss of principal. Any references to safety, security, and lifetime income generally refer to fixed insurance products, never securities or investment products.  Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. 1835631 – 06/23

The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.