Annuities
Stable Retirement Income
What are Annuities?
An annuity is a contract between you and an insurance company (similar in this regard to life insurance) in which you make a one-time payment or series of payments over time. In return, the insurance company pays you a series of payments that begin either immediately or at some point in the future. In other words, these are financial tools that can be an income source.
Things to Know
- There are three kinds of annuities: fixed, indexed, and variable. Each kinds has it’s own risk and payout structure. James Health and Medicare only works with the fixed and indexed varities.
- They are primarily for retirement income and are not suitable for those seeking capital gains.
- Money builds on a tax-deferred basis and similar to your 401(k), can only be withdrawn without penalty after age 59 1/2.
- Annuities are customizable in terms of when and how much you contribute, and when you wish to start receiving payments (you might see this referred to as “annuitizing”).
- Remember that unlike contributions to a 401(k), money used to fund these instruments does not reduce your taxable income. Additionally, income paid out is taxed as regular income, not as capital gains.
Protection from Market Downturns
Annuities can shield you from market downturns while still allowing you to participate in gains in the market.
Tax-Deferred Growth
Interest earned is not taxed until you withdraw that money from the annuity. This allows your funds the possibility of faster growth.
Principal Protection
Most annuities offer guarantees so that the original amount of your investment is 100% protected.