What is an annuity?
An annuity is a contract with an insurance company. You put money in for growth, a retirement paycheck, or both.
The fair worry
That one word covers different contracts. I'll start with the two jobs they can do.
The answer
One job is growth. A fixed annuity earns interest at a rate the company sets. An indexed annuity uses a formula linked to an index, with limits.
The other job is a paycheck. Your money turns into regular payments, starting now or later. Some payment choices keep paying for the rest of your life. A contract can also let money grow before payments start.
The contract spells out the benefits, costs, and access rules. Those rules differ from one contract to another.
The downside
Turning savings into lifetime payments generally means giving up control of that money. Guarantees depend on the insurer's ability to pay.
At your consultation
On your free consultation, your retirement advisor will put those two jobs beside YOUR income and bills. That's where you start, before choosing anything.
More questions on this topic
- Can I lose money if the market drops?It depends on the type. Fixed and fixed indexed annuities protect your savings from market drops. Variable and index-linked annuities can lose money.
- Will I lose access to my money?Yes, an annuity can limit access. Some charge for early withdrawals. Turning money into lifetime payments generally means giving up control.
- How long is my money tied up?Often 5 to 10 years, sometimes longer. Even then, you can generally take some out each year, and shorter terms may be available.