Annuities are a financial tool that can be part of both your offense and defensive in your financial game plan. There are many different types; immediate, fixed, variable and indexed. The returns are based on the structure so you must do your homework. Most annuities are issued and are backed by the financial strength of insurance companies.

All annuities have a surrender period in which an investor would be penalized for withdrawing the money before the end of the period. Annuities require a beneficiary to be listed and the payout can bypass the probate process.

Immediate annuities are a way of creating a cash flow from a large sum of money.

Fixed annuities are tied to an interest rate that typically is locked for a period of time. A fixed rate annuity can be for 2, 3, 4 or 5 years and there are longer terms. The rate that is issued is based on current interest rates in the market.

Index annuities have a variable rate of return that is typically tied to a Market Indicator like the S & P or Dow Jones. The rate of return is based on the movement of that indicator along with how the rate of return is calculated. There generally is a cap on the performance, however, the worst performance you can have is a 0% return.

Index Linked Annuities are similar to the Index annuity as the performance is tied to a market indicator. Unlike an index annuity, you can lose your principal. The difference is that participation in the upside of the market indicators is greater meaning the annuity may earn a great return.

Variable annuities have the highest risk because your money is invested in investment accounts that are similar to mutual funds. The investor chooses from upwards ot 90 options that can be diversified between stocks and bonds. What makes Variable annuities different is that they usually have an income benefit that is based on fixed return.

They are offered by insurance companies, grow tax deferred and have a death benefit that bypasses probate. Each of the different types have pros and cons.

We coach our clients through the process as it is up to each investor to make the final decision as to when to buy and sell. Our role is to ask questions, investigate and provide information to make a decision.

Where many people fail at investing is when they don’t ask good questions, don’t understand the downsides or only focus on one aspect. Let’s talk strategy!