Annuities are often misunderstood. Many people may find it difficult to understand and navigate these insurance products due to misinformation, rumors, and myths. As a result, many individuals may be put off by the idea of purchasing an annuity.
In truth, some annuities, such as fixed index annuities, can help you generate income and provide growth potential while protecting you from market downturns. Let’s tackle some common questions and misconceptions about annuities to help you make an informed decision about whether an annuity might be the right choice for you.
Although annuities share many common attributes, each annuity type has its own set of rules. In general, an annuity is a contract with an insurance company in which you pay (one-time or a series of payments) to receive guaranteed income at some point in the future.
Types of annuities include fixed annuities, variable annuities, and fixed index annuities. There is a range of annuity options, but typically they fall into two categories — immediate annuities and deferred annuities.
With an immediate annuity, you make a lump-sum deposit and immediately start drawing income. With a deferred annuity, you pay premium to an insurance company, and the company pays it back plus some amount of return later. When you purchase certain types of deferred annuity, you won’t receive income payments until you elect a payout option.
To learn more about these types of annuities and specific Midland National annuities, you can reach out to a financial professional to help guide you, answer your questions about annuity products, and more.
Most annuity types have no maintenance fees or annual fees. Some annuities have varying fees depending on the type of the annuity and additional benefits it may provide. It’s important to understand the different types of annuities, so you can compare their costs and benefits and determine what product will be right for you.
Annuities can offer valuable features that aren’t typical of other retirement income options, like tax deferral, income guarantees and/or a guaranteed minimum death benefit. If you’re uncertain about the fees associated with the annuity, ask your financial professional for clarification.
Many annuities give you the option to withdraw a portion of the contract without a penalty.1 Some annuities may require a waiting period before you can access the full value of the annuity.2 Rules regarding early withdrawal can vary — you would want to check on specific features with your financial professional.
Some people may believe an insurance company will keep the remaining annuity value upon death. This is true of a "life-only" payment option within an annuity contract, but life-only is just one of many payment options you can choose.
Annuities can be excellent tools for tax-deferred growth accumulation over time and an income stream. Many young workers can use annuities as a tax-deferred way to save for their future.3 Some people choose to wait until they are nearing retirement to purchase an annuity.
Every situation is different, so it’s important to seek tax advice from a qualified tax professional before purchasing an annuity to understand any withdrawal penalties that may apply.
Annuities such as fixed index annuities are becoming a popular option for many. The opportunity for growth and protection against the unexpected can make fixed index annuities a nice fit for many retirement portfolios.
1Withdrawals taken prior to age 59 1/2 may be subject to IRS penalties.
2A surrender during the surrender charge period could result in a loss of premium. Surrender charge structure may vary by state.
3Under current law, annuities grow tax deferred. An annuity is not required for tax deferral in qualified plans. Annuities may be subject to taxation during the income or withdrawal phase. Neither Midland National, nor any financial professionals acting on its behalf, should be viewed as providing legal, tax or investment advice. Rely on your own qualified professional.
Fixed index annuities are not a direct investment in the stock market. They are long term insurance products with guarantees backed by the issuing company. They provide the potential for interest to be credited based in part on the performance of specific indices, without the risk of loss of premium due to market downturns or fluctuation. Although fixed index annuities guarantee no loss of premium due to market downturns, deductions from your accumulation value for optional benefit riders or strategy fees or charges associated with allocations to enhanced crediting methods could exceed interest credited to the accumulation value, which would result in loss of premium. They may not be appropriate for all clients. Interest credits to a fixed index annuity will not mirror the actual performance of the relevant index.
The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product