What Is an Annuity? Ankeny residents need to understand this tool

When planning for retirement, one financial tool that often comes up is an annuity. But what exactly is an annuity, and how does it work? In this blog, Will from Pierce Insurance will break down the basics of annuities and help you understand if they might be a good fit for your financial plan.

Understanding Annuities

An annuity is a contract between you and an insurance company. You make a lump sum payment or a series of payments, and in return, the insurer agrees to provide you with regular income payments, either immediately or at some point in the future. The primary goal of an annuity is to provide a steady income stream, often used for retirement.

Types of Annuities

There are several types of annuities, each with different benefits:

• Fixed Annuities: These provide guaranteed payments over time. They are low-risk and offer a stable return.

• Variable Annuities: Your payments fluctuate based on the performance of underlying investments, offering potential for higher returns but with more risk.

• Indexed Annuities: These are tied to a market index, like the S&P 500, offering a balance between growth potential and downside protection.

• Immediate Annuities: You start receiving payments right after your initial investment, making them ideal for those who need income right away.

• Deferred Annuities: Payments begin at a future date, allowing your money to grow tax-deferred in the meantime.

Pros and Cons of Annuities

Like any financial product, annuities have advantages and disadvantages.

Pros:

• Guaranteed income for life (depending on the contract)

• Tax-deferred growth potential

• Protection from market downturns (for fixed and indexed annuities)

• Customizable payout options

Cons:

• Potentially fees and surrender charges

• Limited liquidity (withdrawals may be penalized)

• Complex terms and conditions

• Returns may be lower compared to other investment options

Is an Annuity Right for You?

Annuities can be a great tool for retirees who want to ensure they don’t outlive their savings. However, they may not be the best choice for everyone. If you value liquidity and high growth potential, other investment vehicles may be more suitable. It’s always best to consult with a financial professional to determine if an annuity aligns with your goals.

Are you interested in an annuity? Pierce Insurance can help! Many people aren't sure how to fund an annuity, the most common paths I see are CD rollovers when a CD expires or when you retire some individuals choose to move funds from their old work retirement account.

Pierce Insurance is located in Ankeny, Iowa but serves the entire state including our local communities of Des Moines, Altoona, Ames, Boone, Madrid and more.