Understanding the Basics
Types of Annuities
An annuity is a contract between you and your insurance company. With an annuity, you receive payment at set intervals or on a predetermined schedule. They provide an income stream and help address the risk of outliving income for retirement. Furthermore, a few different types of annuities exist. For example, fixed annuities, variable annuities, or fixed indexed annuities (or FIAs.) Indeed, there may be recurring income payments available with all of these products. Only fixed annuities and FIAs, however, provide protection of principal. Usually, this fixed term lasts for your whole life. This is why we specialize in these types of annuities. And these are specific insurance products, not investments.
What is a Fixed Indexed Annuity?
An annuity agreement has two main phases. The accumulation phase, and the distribution phase. The accumulation phase involves letting your money grow. Once retirees access their funds or lifetime income begins to be distributed, the distribution phase starts. While the details of each annuity contract differ depending on the type of annuity, these two steps will always apply to FIAs.
During this phase, you save for retirement. You allow your FIA to grow with a set interest rate. Importantly, the annuity grows regardless of the market conditions. Additionally, FIAs may provide greater returns when the index rises, while still keeping your principal safe when the index falls. This phase allows your money to grow steadily while you leave it in place.
This is the second phase of an annuity contract. It begins once you start receiving payments from the annuity. There are several different ways you can choose to withdraw your income. You could schedule withdrawal to receive payments annually, monthly, or quarterly. You can even select to receive an income for life. An FIA could allow you to withdraw specific payments annually or monthly, without penalty.