Annuity Investing

Annuities are more of just a pure investment contract than life insurance. When you buy an annuity, it’s split into two different stages:

  • The first stage is called the accumulation phase, which means you’re putting money into your contract and the annuity company is investing it for you. You’re saving up money in an investment account.
  • When you’re ready to retire, you convert your annuity into the payout stage. You’ll have options to choose from, like, “Do I want guaranteed payments for the rest of my life? Do I want guaranteed payments for 20 years?” The company will tell you the payment amounts for your various options so you can get a clear picture.

What are the Risks?

The risk involved depends on what type of annuity you buy. Like life insurance, there are different types.

There are two types of annuities, fixed and variable:

  • Fixed annuities pay a fixed rate of return that’s guaranteed. Like whole life, you know exactly what your account value will be when you retire. They’re very safe. However, like all investments, lower risks usually provide lower returns.
  • With variable annuities you’re investing in the stock market, so how well you do depends on the market and there are no guarantees as to your account value when you’re ready to retire.

In comparison to life insurance, you’ll likely make more money with an annuity because you’re not paying for any life insurance with your premiums. To be completely transparent, annuities are not my favorite investment option; however, I want to be fair and share all information I have available. If you would like to discuss, schedule a call with me here.

Top Benefit: Guaranteed Income You Can’t Outlive

The one thing about the annuity that the life insurance doesn’t offer is you can guarantee income with it for the rest of life.

For example, if you have $300,000 in your annuity and you’re ready to start the payout phase, you can choose to receive set, guaranteed payments for the rest of your life, and they’ll turn it into a lifetime pension for you.

So, no matter how long you live, you’ll keep getting those payments. Plus, the amount of the payments will never go down, even if your total payments surpass that $300,000.

Life Insurance or Annuity?

Which investment would work better for your situation?

You might prefer life insurance:

  • If you have children and need a life insurance policy, that’s usually enough to swing you to investing in life insurance, because then you’re hitting two goals at the same time.
  • If you want to retire early, the life insurance might be a better choice because there are no restrictions as to when you can take money out with a loan. With the annuity, you’re supposed to keep money in there until you’re at least 59 ½, according to the IRS. If you take out money earlier, it can lead to a tax penalty.

You might prefer an annuity:

  • If your goal is to get to retirement as soon as possible with the most money, an annuity will generally have a higher account value.
  • If you’re not healthy enough to qualify for life insurance, then an annuity is your option because there’s no health exam for an annuity. It’s open to everyone.
  • If you’re single, don’t have children, and don’t need life insurance, that would push you towards investing in an annuity.