What type of annuity is right for me?

Saving enough for the future is a top goal for many people, especially as the years spent in retirement continue to grow. Nearly four in ten pre-retirees say they are very concerned about outliving their assets. Creating a retirement plan is now more critical than ever. Including an annuity as part of your overall financial strategy can help you grow and protect your retirement savings while providing income for the future. Let’s look at the different types of annuities and the benefits they can provide as you prepare for retirement.

What is an annuity?

An annuity is a long-term contract between you and an insurance company where in exchange for lump-sum or periodic payments, you can receive an income stream in retirement. These products are specifically designed to help you address the risk of outliving your retirement savings and offer more financial security to your retirement plan.

How do annuities work?

For most annuities, there are two phases. The accumulation phase is when your payments fund your annuity and grow on a tax-deferred basis, helping to build up the cash value. When you reach retirement and are ready to receive income payments, the annuity enters the annuitization phase, also known as the payout phase. The amount and length of time you receive your payments will depend on the annuity you choose.

What are the benefits of annuities?

Annuities are designed to provide income for the future and help supplement Social Security benefits, investments, and other retirement savings. They can be customized based on your financial goals, risk profile, and retirement timeline.

Benefits of annuities include:

No annual contribution limits

Unlike some other retirement savings vehicles, some annuities may not have a limit on the amount of money you can put into it every year. Certain restrictions may apply based on the annuity contract.

Tax-deferred growth potential

You will only have to pay income taxes on any earnings from your annuity once you begin making withdrawals. ¹

Possible downside protection

Fixed Index annuities offer growth potential without the risk of losing premium due to market downturns while not being directly invested in the stock market. ²

Legacy benefits

Some annuities offer a death benefit to maximize the legacy you pass to your beneficiaries.

Lifetime income benefits

To help provide income you can count on for the rest of retirement, certain types of annuities offer a guaranteed income option.

What are the types of annuities?

Depending on your age and retirement goals, there are a variety of annuities to help build your financial strategy and meet your income needs for the future.

Immediate annuities

Provide steady retirement income and are funded by a lump sum payment where withdrawals begin within 30 days to one year.

Single premium immediate annuity (SPIA)

Purchased with a single lump-sum payment, an SPIA does not have an accumulation phase but begins paying out guaranteed income soon after purchase. Oftentimes people approaching retirement age may choose this type of annuity to help supplement their pension, Social Security, and other retirement income.

Deferred annuities

Pays a lump sum or income payments at a later date. There are several types of deferred annuities that offer optional add-ons to help turn your retirement savings into income for the future.

Fixed annuity

With a fixed annuity, your contributions grow at a guaranteed specified interest rate for a certain period of time. A common type of fixed annuity is a multi-year guarantee annuity (MYGA) which guarantees an interest rate for a specific period of time. A key difference between a MYGA and traditional fixed annuity is the length of time the interest rate is guaranteed.

Fixed index annuity

Helping to balance growth potential and principal protection, a fixed index annuity is designed to help grow your retirement savings while protecting your premium from market volatility. Since your premium is not invested directly in the market, even when there are fluctuations, the interest credited will never be less than zero. Many fixed index annuities also offer guaranteed income options that provide income payments for the rest of your life.

Variable annuity

With a variable annuity, you choose investment subaccounts to invest the funds. Your premium is then invested in different assets like money market funds, stocks, and bonds. The value of a variable annuity will vary over time based on the performance of the investments you choose. While there is higher growth potential than other types of annuities, there is also more risk with a chance you could lose money during market downturns.

What type of annuity should I get?

Choosing the type of annuity that will fit into your retirement plan is based upon many factors, examples include when you plan to retire, your risk tolerance, and your financial goals. If you’re early in your career, you may be seeking growth potential to help build your nest egg for the future. If retirement is right around the corner, your focus may be on creating an income stream and leaving a legacy. A financial professional can help you to explore the benefits and limitations for annuities and their options to determine which one may be right for you. Supplementing your income plan with an annuity may help you create lasting retirement savings and offer more financial security.

¹ Under 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 North American Company for Life and Health Insurance, nor any financial professionals acting on its behalf, should be viewed as providing legal, tax or investment advice. You should consult with and rely on your own qualified tax professional.

² 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 the 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.

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