Annuity IQ

When many people hear the term annuity they automatically think, among other thoughts, annual income. That is not always the case though, people need to understand that there are two phases to annuities, unless you buy an immediate Annuity. The two phases are accumulation, also called the deferred stage, and the payout phase, or annuitization.

During the accumulation phase or deferred stage you are receiving interest or your money is invested in sub-accounts. You are trying to build the asset up so you can enjoy the payout phase of the product. But, most individuals never use the payout phase and, instead, opt to take systematic withdrawals. Only about 2% of all annuity contracts are ever annuitized (this is the term to refer to the payout phase).

This leads many people, especially the anti-annuity crowd, to question why people buy annuities to begin with. Annuities are bought because they offer unique benefits that no other investment can offer, this is no secret, and largely ignored by the anti-Annuity crowd. The anti- annuity crowd then says it is pointless to buy a product which you will never fully use. What they fail to realize is people opt for the more flexible withdrawal out of their annuities than the less flexible annuitization of the annuity.

Quite frankly, the annuitization of the annuity locks up your money and you cannot change your mind after the fact. This deters people from annuitizing and that is why only 2% of all deferred annuities are ever annuitized. Instead people prefer to take systematic withdrawals from their annuities to create the income on their own.

The myth is that people opt to not annuitize their contract because their current insurance company “locks” them up and gives them poor annuitization factors. This is not true. Actually, insurance companies know that they have to be competitive with their annuitization factor because you can exchange your deferred annuity to another company and buy an immediate Annuity. Therefore, the company will loose assets and earnings and no insurance company wants to do that.

You can skip the accumulation phase altogether and simply buy an immediate annuity. An immediate Annuity is the exchange of a lump sum of money for a guaranteed income stream. Immediate annuities have grown in popularity over the last few years as more baby boomers retire.

These are good products, if used right. You just have to make sure you have chosen the right option to meet your needs, not just for today but for the future as well. Immediate annuities are, usually, irrevocable once you make the investment.

Immediate annuities, generally, provide you with the highest payout and you are guaranteed your income for whichever time period you choose. This can help build a more reliable and stable retirement income for your needs. You should never put 100% of your assets into one of these contracts.

Today’s world is different and you can get different products that can help you meet your needs. These newer products often times have more flexibility that their older counter parts. We happen to like variable annuities more than other annuity products. The choices and options with Variable annuities are great and exciting and will help you meet your needs if used properly.

What we like is that you can now invest in a variable annuity that can provide you with income forever. You can do this through living benefits on variable annuity contracts. Although the payouts may not be as high as a traditional immediate Annuity, in some cases, it offers more flexibility and potential.

With a guaranteed withdrawal benefit for-life you can withdraw money right away and it is guaranteed for as long as you live. What makes this so special is the fact that you can invest your money into sub-accounts, which are similar to mutual funds, and you have the upside potential of the market. This can allow your income to increase as the market performs and it will allow your income to remain the same if the market does not perform.

These types of benefits can step-up over time, sometimes every year or every 5 years depending on the company you use and the state you live in. This allows for greater flexibility and income potential and you do not have to sacrifice control of your money. This type of benefit comes at an additional fee, but it can be worth it especially if you have not saved enough for retirement.

What is great about these benefits is the fact that if the investments do work out you can cash in the contract or exchange it into something else. This is unlike a traditional immediate annuity where you are in the product forever. Also, with a variable annuity you may still have a death benefit for your heirs, if you choose. This type of investment allows for greater upside potential and no risk on the downside because your income is guaranteed by the insurance company.

There are caveats to these annuity benefits, generally, they are all decent to a certain degree, but you really need to know how these benefits work. For that information you should sign up for annuityiq.com, the only unbiased variable annuity comparison site available. No sales pressure, just the facts on how annuities work.

annuity products and income do go hand in hand. These products can help you build and plan for a better retirement. It is just trying to find the best Annuity for your needs that is the issue and Annuity IQ can help.