Traditional sources of retirement income - mainly Social Security and pensions - may not provide the same sense of security that they did in the past. Like most investors, you're probably concerned with protecting the income you've earned and continuing to receive protected income throughout retirement. Annuities have the potential to protect and grow your assets, and help guarantee* income in the future.
The retirement realities faced by Americans continue to change. Life spans are longer, and traditional sources of retirement income – mainly Social Security and pensions – may not provide the same sense of security that they did in the past. Like most investors, you’re probably concerned with protecting the income you’ve earned and continuing to receive protected income throughout retirement; or maybe this crisis has you exploring ways to diversify that could offer a sense of protection during vulnerable times.
Benefits of an Annuity: Balancing Protection and Growth
In the face of these challenges, annuities can add stability by diversifying your investments and providing steady, reliable income that doesn’t depend on the markets. Annuities have the potential to protect the assets invested, access current growth opportunities, and help guarantee income in the future. To get acquainted with annuities, let’s explore the basics:
What is an annuity?
Annuities are contracts purchased from insurance companies, in which the purchaser’s funds are invested by the financial institution to pay out a fixed income stream later on. This steady stream of income is issued at certain intervals for either a stated amount of time or the lifetime of the owner. While annuities are purchased from insurance companies, and in some ways function like insurance, they themselves are not actually insurance. There are several kinds of annuities, but fixed, variable, and fixed index annuities are the types you’ll probably hear about most often. Here’s how they differ:
- Fixed: Fixed annuities help you to avoid market losses and offer a guaranteed interest rate. The return is guaranteed by having a fixed rate that adds interest to your account through the life of the annuity’s contract.
- Variable: Variable annuities assist you in spreading your wealth across a wide range of investment options, which may help grow your assets, tax-deferred. A variable annuity can expose you to the potential benefit of growth from the market without investing directly in it. Unlike fixed annuities, variable annuities involve investment risks and may lose value.
- Index: Index annuities have the advantages of a traditional fixed annuity while giving you the opportunity to participate in a portion of the growth that may be realized by a market index. Your choice of index determines additional interest that may be credited to your account while maintaining the safety of your principal since interest is credited based on the performance of an index without being directly invested in the market itself. One or more crediting methods also allow you to remain flexible if changes to your priorities arise.
Annuities offer several benefits† that can potentially make them a great compliment to other products in your retirement portfolio:
- When your annuities earn money, the taxes on those earnings are deferred until you make withdrawals. Deferring these taxes can help you to keep more of your money working for you in the market, with the potential to accumulate and compound over time.
- Annuities may offer the option for a guaranteed death benefit that would pass on to your family, as long as you don’t annuitize your contract. Some annuities also offer features that, for an additional cost, can help lock in investment gains and preserve the higher contract value for beneficiaries. Certain restrictions and limitations apply, but a feature like this could mean that your legacy can have the opportunity to continue growing.
- Unlike other tax-deferred retirement accounts, such as IRAs or 401(k)s, there is no annual contribution limit for an annuity. This means you can continue to put money away in them and that they can be particularly useful for those who may be nearing retirement age and are still playing catch-up.
Ultimately, annuities can provide the opportunity for income throughout your retirement and balance your portfolio by providing protection, flexibility, and growth potential. Annuities can be structured into different kinds of instruments – fixed, variable, index, immediate, and deferred income – which gives investors flexibility, but can also feel confusing.
To ensure that you’re choosing an annuity that’s right for you, work with your financial professional to learn about your options and which annuities best align with your retirement goals. Visit Jackson’s Annuities Benefits page to learn more today.
Annuities are long-term, tax-deferred vehicles designed for retirement. Variable annuities involve investment risks and may lose value. Earnings are taxable as ordinary income when distributed. Individuals may be subject to a 10% additional tax for withdrawals before age 59½ unless an exception to the tax is met.
There is no guarantee that a variable annuity with an add-on living benefit will provide sufficient supplemental retirement income.
*Guarantees are backed by the claims-paying ability of the issuing insurance company.
†Add-on benefits are available for an extra charge in addition to the ongoing fees and expenses of the variable annuity.
Annuities are issued by Jackson National Life Insurance Company (Home Office: Lansing, Michigan) and in New York, annuities are issued by Jackson National Life Insurance Company of New York (Home Office: Purchase, New York). Variable products are distributed by Jackson National Life Distributors LLC, member FINRA. May not be available in all states and state variations may apply. These products have limitations and restrictions. Contact the Company for more information.
Jackson® is the marketing name for Jackson Financial Inc., Jackson National Life Insurance Company®, and Jackson National Life Insurance Company of New York®.
Tom Hurley, Phil Wright, and Ashley Feltner are affiliated with Jackson. All other authors are not affiliated with Jackson.