Confused by the countless variety of annuity products available to provide a steady stream of income in retirement? You are not alone. Many people are looking for an annuity to pay out benefits down the road. The key is to select a product that fits your need for a guaranteed income for a specific period.
Fixed vs. Variable Annuity:
Ultimately, there are two types of annuities available. A fixed annuity is like a certificate of deposit that provides interest for a specific period of time. The insurance company guarantees that the investor will earn a minimum rate of interest during the time that the account is growing, before periodic income payments are paid out to the investor.
With a variable annuity, the investment options are typically mutual funds that invest in stocks, bonds, money market instruments, or some combination of these three investment vehicles. The investor makes either a single purchase payment or a series of purchase payments and in turn, the value of the investment depends upon the performance of the investment options chosen.
In either case, the annuity provides the owner with tax-deferred growth of earnings and a death benefit that pays the beneficiary either a guaranteed minimum amount or an option of receiving a stream of periodic payments for various periods of time.
What is the primary difference between a fixed and variable annuity? A fixed annuity provides more security of principal than a variable annuity, but is limited in its potential for high returns. This approach is in sharp contrast with an investment made in a variable annuity, where the investment return fluctuates with the performance of the stock and bond markets and there is less security of the principal. The difference between types of annuities is comparable in some ways to the difference between investing in certificates of deposit versus mutual funds, as there is a trade-off between risk and potential investment returns.
Seek a Flexible Plan
“The baby boomers who make up the great mass of annuity investors should look for a plan that will give them the most flexibility and the greatest return with their money,” notes Terry Marr, President of NIA Securities, LLC. “Their goals may change or their income levels may vary from prior years. If so, they may find themselves with fewer dollars and may need to maximize the assets they do have to reach their desired yearly income for retirement living. Or, perhaps their pre-retirement income unexpectedly increases, and they have additional funds to invest for retirement. Regardless of income level, investors want to increase the investment options available to them for maximum flexibility.”
Marr and other NIA Securities, LLC investment counselors can help clients to quantify their short and long term goals to craft a financial plan with the goal of achieving a steady stream of income during the retirement years.
“We are an independent broker/dealer with no allegiance to a proprietary product,” Marr observes. “Therefore, we can help clients make an unbiased, informed decision as to what financial products are most appropriate given their financial assets, income needs, and risk tolerance.” Terry Marr can be reached at (201) 845-6600 or tmarr@niagroup.com.
