Over the years, annuities have been the victim of bad press. Why? Is it the length of the contract? Surrender fees? Fear that the company might keep the money? Much of the bad press seems to be generated by competitors, those selling their own products.
But annuities aren’t the pit of danger many make them out to be. On the contrary, annuities were designed to take the risk out of retirement, not put more risk into it. And, when used properly, that’s exactly what they can do! Annuities offer your retirement plan something no investment can: guaranteed lifetime income. These annuities can provide this guarantee as a direct result of how annuities work and what they’re designed to do.
An annuity is an insurance contract in which you make a lump-sum payment or series of payments in exchange for guaranteed income payments that begin either immediately or at some point in the future. The key word here is “guaranteed.”
With an annuity, your income payments do not depend on how the stock market is doing today, next week, or next year. They’re not based on your annuity provider’s ability to stay in business. Your annuity income payments will continue for as long as you live, no matter what happens in the economy or the annuity market.
An annuity is an excellent way to create a retirement “paycheck” that you can’t outlive. And that income can supplement other sources of retirement income, such as Social Security or a pension, giving you the financial security and peace of mind that comes with knowing your basic living expenses are covered.
Annuities offer safety and security because they are contracts between you and an insurance company. When you purchase an annuity, the annuity issuer agrees to provide the contractual benefits, either immediately or at some point in the future, in exchange for your lump sum payment (or series of payments).
Annuities are regulated by state insurance departments, which means there are certain protections in place for annuity owners. For example, most annuity contracts include a death benefit, which ensures that your beneficiaries will receive at least the amount of money you have invested in the annuity, if not more.
Additionally, annuity payments are backed by the “full faith and credit” of the issuing insurance company, which means that even if the company were to go out of business, you would still be entitled to receive your annuity payments.
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