Understanding the Benefits

An “annuity” is simply defined as an agreement with a company or organization, to receive money on a set schedule. Usually, this agreement allows you to receive money for the rest of your life. An annuity can provide you with regular monthly or annual payments.

Essentially, the risks associated with an annuity vary based on which type you have. For example, some annuities, such as fixed annuities or fixed indexed annuities (FIAs) won’t lose money when the market drops. However, variable annuities might suffer losses when the market goes down. Because we believe in the safety of principal as one of our core values, Creations Financial can help you select an annuity product that provides protection. Additionally, the annuity products we offer can also get you a reasonable rate of return**.

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Fixed Indexed Annuity Benefits

An FIA has the benefit of keeping your money safe. This is because it doesn’t invest money in the stock market. An FIA is an agreement between you and an insurance company. You contribute a lump sum of money, and the insurance company agrees to pay you an interest rate based on an index. There is also a fixed term and a pre-defined schedule of payments.

Although the FIA is based on the performance of a stock market index, your money isn’t directly invested. If the market goes up, you can get the benefit of a reasonable rate of return**. If the market is on a downward trend, however, you won’t lose your money. The insurance company sets aside a reserve as protection for the money. The contract and the strength of the insurance company protect you.

Phases of an Annuity

There are two main phases to an annuity contract. Accumulation phase, and distribution phase. These are important in understanding annuity benefits. The annuity stage starts at the time you sign your annuity contract, and the distribution stage begins once you can begin taking out your income. There are different terms with each annuity, that dictate how much money you can take out and when. Other details of the individual contract may also vary.

Taxes and Annuity Benefits

In the first stage of your annuity, your money grows tax-deferred. Your money is essentially non-taxable while it grows. Taxes are only paid when the money is taken out. An annuity product may be helpful if you wish to reduce your current tax situation.

Additional tax benefits may also apply. For example, for people under the age of 59 1/2, who get a lump sum from a former employer’s 401(k). If your lump sum is part of early retirement or severance, you’d have to pay hefty taxes. However, if you rollover the money into an annuity, you may be able to postpone those taxes. Of course, you should always consult a tax advisor about the specifics of tax issues.

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Learn More

Want to learn more about annuity benefits? We can teach you. Reach out to us to schedule an appointment, or to reserve a spot at one of our educational seminars. We can educate you on options to protect your retirement money, an annuity product being one of those options. We’re always here to help.

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