Think of an annuity as a part of your hypothetical “investment toolbox.” Chances are your home toolbox contains more than just a wrench. You probably also have a hammer, screwdrivers, a level, and so much more because, after all, one wrench won’t solve every need. Annuities are just one of many investment tools that can fill your toolbox.
For the millions of different family situations that need investment answers, a variety of annuities have been developed over the decades to be part of the solution. The good news is that there are many annuity options to help you reach your goals. The bad news is that it’s complicated. Navigating these options takes time, knowledge, and experience combined with a big-picture understanding of overall investment and tax strategy.
What is an annuity? In the most basic sense, an annuity is a contract between you and the insurance company where you pay for the annuity in either a single lump sum or multiple payments over time. In return, the insurance company promises to make payments from the annuity to you in a single or series of payments that can be designed to last lifetimes. In light of how many options are available and how different each family’s needs are, it’s normal that you might favor one type of annuity over another. In fact, that’s how you get the most out of your investment!
The term “annuity” carries many different meanings depending on the way it’s being used. There are the traditional Single Premium Immediate Annuities (SPIA) similar to a company pension and Fixed Annuities. Then there are more modern product developments such as Variable Annuities and Fixed Indexed Annuities that can easily muddy the waters rather quickly. Let us not forget also that there are Immediate Annuities, Deferred Annuities, and as recently as 2015, Congress enacted legislation which paved the way for Qualified Longevity Annuity Contracts (QLAC) that defers taxes past age 70.5.
(That was a mouthful, but don’t worry: We can help you make sense of all this.)
Having a wealth of choices is a good thing! Can an annuity be right for you? Sure, it may be. Part of our mission is to help you make sense of all these choices and when appropriate choose the annuity that’s right for you and yours.