Mike Kaminski

Well Being Financial Group

Mike Kaminski picture

Annuities can provide guarantees in your essential investments.

Annuities are investment products with an insurance component based on the financial strength of the annuity issuing insurance company. Annuities offer an attractive alternative to secure a steady lifetime income stream with flexible options based on the investor's preferences of security and risk. Annuities are also unique in the sense that income from gains and contributions are tax-deferred until you decide to withdraw.


Fixed vs. Variable Annuity Investment Issues

Fixed annuities can provide a certain measure of protection against the vagaries of the market since annuities are tied to the index, as opposed to individual stocks. Besides, the issuing company guarantees a bottom line, and your investment is protected from being wiped out by market risk or downside. The question of whether to annuitize your investment or allow it to appreciate and withdraw in a lump sum depends on your financial status upon retirement, including your tax bracket and other sources of income.

Variable annuities are highly attractive to investors who want higher returns than a traditional retirement investment vehicle but offer some of the expected benefits and safety nets associated with insurance and other retirement investments. Variable annuities are classified as securities and can offer a lot more flexibility to the investor, allowing multiple sub-accounts for investments. The returns from variable annuities depend on the performance of your accounts. Variable annuities can lose value and have market exposure.

Annuity benefits from an Investment perspective

Due to the highly profitable nature of annuity products, insurance companies provide a variety of incentives and bonuses to get investors to transfer. While annuities and the net returns they generate are based on a series of factors that vary depending on the issuing company and your choice of annuity, they offer tremendous flexibility in transferring sub-accounts and the entire annuity itself. This generally helps offset the early surrender charges applicable when you bail out on an annuity investment.

Ultimately, the essential benefits from an annuity are a death benefit, tax deferral, and guaranteed income payments. No other investment vehicle will continue making payments without management or risk, even if you live well into a ripe old age. Either your existing capital dries up, or you have to continue managing, with some risk, an investment portfolio. With an annuity, the accumulation and distribution phases of investment are merged. What you get is an investment vehicle that offers substantial and continued returns with relatively lower or no risks in the long term.

It is to be noted that there are various kinds of annuities ( immediate fixed, deferred variable, etc. ) within the two main types and numerous insurance companies that offer annuity products. Products may vary by rates of return, different administrative and annual charges, and differing corporate policies for allocation of sub-accounts, annuity surrenders, and transfers. Each annuity and each company has its own set of advantages and features. Which annuity from what company is most suitable for you, and offers the most benefits, should be decided in consultation with your financial advisor.

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