The benefits of annuities
There are various types of annuities, but they share several features that can be beneficial to your clients in preparing for the next recession and a potential stock market downturn. These benefits include:
- Tax-deferred growth. Any gains on funds within an annuity will grow tax-deferred until a qualified withdrawal is made.
- Annuities can provide a guaranteed stream of lifetime income that you can’t outlive or that won’t be reduced if the stock market drops. Contracts typically include a death benefit, as well.
- There are a variety of annuitization options available to provide your clients and their spouses or other beneficiaries with an income stream to supplement other retirement income.
Keep clients from panicking
While it is wise to position clients’ investments to weather a market downturn, it’s crucial that you prepare them for the worst, and ensure that they don’t panic and abandon smart-planning. Annuities are a tool that can help you alleviate some of your clients' fears about the market and help them stay on course with their overall plan.
There are several annuity options with varying designs for accumulation and/or annuitization. Immediate annuities are funded with a single, lump-sum purchase and can provide a guaranteed stream of income for life. This type of annuity can be suited for clients at or near retirement who are looking to convert a lump-sum into immediate guaranteed income.
Deferred annuities can be funded with a lump-sum payment or over time with a series of purchase payments. Two common forms of deferred annuities are:
- Fixed annuities offer a guaranteed interest rate for a period of time and can be annuitized to provide a guaranteed stream of income for life.
- Indexed annuities are tied to a market benchmark like the S&P 500 and typically offer a minimum guaranteed rate of return or a portion of the return of the benchmark index, whichever is higher. The indexed annuity can also be annuitized to provide a stream of guaranteed income for life.
These types of annuities can be used in various ways to provide a level of security against a drop in the stock market and guaranteed lifetime income when needed. Annuities can provide the opportunity for tax-deferred growth in the near term and guaranteed lifetime income in retirement or whenever the timing is right for your clients. Various types of annuities can be used to target both the overall allocation that is right for your client and to deliver the income streams they need.
Annuities are intended as vehicles for long-term retirement planning, which is why withdrawals reduce an annuity’s remaining death benefit, contract value, cash surrender value and future earnings. Annuities also may be subject to income tax and, if taken prior to age 59 ½, an additional 10% IRS tax penalty may apply.
An indexed annuity is not an investment in an index, is not a security or stock market investment and does not participate in any stock or equity investments.
Product guarantees are backed by the financial strength and claims-paying ability of the issuing company.