Let’s Talk About The “A” Word: Annuities

October 17, 2019 / Eric Peterson /

Today’s Prep:

We’ve all heard about annuities, but there’s still tons of confusion about them. What are the different types of annuities? And are any of them worth having?

Equipping Points:

Annuities are financial tools, but often people are so put off by them that they don’t even want to hear about them. We want to start by gaining a knowledge and understanding, so we will look at the four different types of annuities in this episode of the Retirement Ready podcast. Then, you can determine whether or not they are right for you depending on your situation.

All four types of annuities provide different options that may or may not fit into your financial plans. When people think of annuities, a lot of people first think of immediate annuities which provide payment for life. The downside is, if you die before you reach the value of what you paid for the annuity, you’ve lost money. In most cases, Eric hasn’t recommended these for his clients.

A fixed annuity allows you some access to the funds and pays a certain percentage for a number of years. At the end of the term, a window opens up to take out the money completely. What you’re looking for is a decent interest rate for a certain amount of time.

A variable annuity is not safe because your money is at risk. Variable annuities have a lot of fees in them and a lot of people don’t understand the fees in the fine print. You have to question, why are you in it? Will you use the benefits and features within the annuity or are you paying for things you don’t need?

The last category of annuities is the fixed index annuity, which is a subset of the fixed annuity. For someone who is looking for protection but still wants growth to combat inflation, this may be an option.

Do any of these types of annuities fit in your financial plans? Listen to the full episode to hear more information about annuities or click on the timestamps below to learn more about a specific type.

1:20 – There are four types of annuities.

2:58 – Immediate annuities are like a pension–payment for the rest of your life.

4:04 – The downside of immediate annuities.

5:05 – A fixed annuity is like a CD.

6:10 – The variable annuity has the worst connotation of the four types of annuities.

9:51 – Finally, the fixed index annuity interest rate is dependent on the movement of an external market index.

Related Resources:

Can Financial Planning Be A DIY Job?

How To Ask Better Financial Questions

Today’s Takeaway:

[spp-tweet tweet=”Annuities are tools. They’re not for everybody, but they can be very powerful if you understand what they can do. –Eric Peterson“]