Last week I wrote about the different annuities that are available and the difference between them. This week, I hope to describe who may be best suited for each annuity.
Fixed Annuity – As I wrote, this annuity earns a fixed rate of return. This annuity is best suited for someone who does not wish to have a stock market like returns, but instead, earn a nice rate of return every month. Clients who purchase this annuity will not want to take any withdrawals from the principal, but instead just take the interest from it. Once the annuity matures, the client can either roll it over to continue at the new rates available or withdraw the principal (and any interest not taken) to invest elsewhere. If the owner passes, the beneficiaries will receive the funds in the account. There are no fees associated with this type of annuity.
Immediate Annuity – This annuity is for someone who is looking to receive immediate income without the benefits of earning stock market returns. This is much a pension. The nice thing about this annuity is you do not have to worry about changing strategies every year. You will get a nice steady income that you can count on for your life, or if you’re married, the life of both of you. Some companies will charge a fee, so make sure to ask any fees that may be associated.
Variable Annuity – This annuity is for someone who has a high-risk tolerance as there is a chance for losing money when the stock market falls. This type of annuity has high fees; when considering this annuity, it is essential to ask about all fees, charges, and expenses that you will have to pay.
Fixed Index Annuity – This annuity is best suited for someone who is looking stock market returns with zero stock market risk. If someone is looking for a lifetime income payout, but still have a chance for the account to grow, the Fixed Index Annuity is the right choice. The lifetime income will be fixed (although there are a couple of annuities that have the options of increasing income). For those who need to know exactly how much they will receive month after month and enjoy the gains of the market, a Fixed Index Annuity should be considered.
For someone who is looking to place their assets into a vehicle that will be passed to their heirs and do not need to take income, there are several Fixed Index Annuities that offer great returns without the fear of ever losing the principal and locked in gains. The fees on a Fixed Index Annuity will range from 0% to as high as 2% depending on any additional benefits (riders) that you wish to purchase it.
When considering an annuity, it is important to discuss your goals, risk tolerance, and desires. Your advisor should ask a lot of questions to determine what is best suitable for you