Understanding the Basics

An annuity, by definition, is an agreement with an organization for you to receive set payments of money over time. Usually, an annuity allows you to receive payments for the rest of your life. Furthermore, you can decide whether you want to receive payments as monthly or annual sums.

grandmother holding her dog on a leash at the beach while her granddaughter hugs dog annuity basics bakersfield ca

Annuity Basics

The risks associated with an annuity vary, based on the type of annuity it is. For example, some annuities don’t lose money if the stock market drops, while others are at risk of this. A fixed indexed annuity is protected in the event of a stock market decline, while a variable annuity could lose money in this situation. Because we believe in safety as a core value, Creations Financial will help you select an annuity product that provides protection of your money, and a reasonable rate of return**.

Fixed Indexed Annuity Basics

To reiterate, a fixed indexed annuity has the benefit of keeping your money safe. This is because it doesn’t go up and down with the stock market. Instead, you contribute a certain amount of money, and the insurance company that issues the annuity agrees to pay you an interest rate based on an index. There is also a fixed term and a pre-defined schedule for payments.

Your money isn’t invested directly, although your fixed indexed annuity (or FIA) is linked to the stock market. You can gain a reasonable rate of return** when the market goes up. When the market goes down, however, your principal is protected. The insurance company is required to protect your money in the terms of the contract.

grandparents running with their grandchildren on the beach annuity basics bakersfield ca

The Stages of an Annuity

There are two main stages of annuities. Accumulation and distribution. These are important in understanding annuity basics.

Taxes and Annuity Basics

An annuity grows tax-deferred. You only pay taxes on the money in your annuity when it’s taken out. Additional tax benefits could also be possible. For example, If you’re under the age of 59 1/2, and you receive a lump sum from a former employer’s 401(K). In this situation, if this sum is part of early retirement or severance, you’d have to pay hefty taxes. If you convert the money into an annuity, however, you may be able to postpone those taxes. Of course, you should always consult a tax advisor in regards to topics like this.

Scroll to Top