Are you in the process of preparing for retirement? If so, you may be exploring the various financial tools available to help you manage your assets and income after you retire. From IRAs to insurance to investment products, you have a broad range of tools and products at your disposal.

An annuity is one potential tool to consider. Annuities are often used to generate income, minimize taxes, manage risk and more. There are several types of annuities, but most fall into one of two categories: immediate and deferred.

An immediate annuity is one in which your initial premium is immediately annuitized, or converted into a stream of income that’s guaranteed by the insurance company. For example, you may contribute a lump sum and, in return, receive a monthly payment for the rest of your life.

While immediate annuities are useful in specific situations, many individuals opt for the other type—deferred annuities. A deferred annuity is one in which the premium isn’t immediately converted into income via annuitization. Instead, your premium has the opportunity to grow. At some point in the future you can annuitize the value, take withdrawals or leave the funds to your beneficiaries.

Not sure whether a deferred annuity is right for you? Confused about how they work? Below are a few common questions and answers about deferred annuities. If you’re interested in learning more, contact a financial professional, who can help you determine whether a deferred annuity is right for your needs.


Can my money grow inside a deferred annuity?

One of the appealing features of a deferred annuity is that your funds have the ability to grow on a tax-deferred basis inside the contract. How they grow depends on the type of annuity you have. There are several different types of deferred annuities, but the two most common are fixed and variable.

A fixed annuity is one in which your growth comes through the accumulation of interest that’s paid by the insurance company into the contract’s accumulated value. The interest rate is usually fixed for a predetermined period of time, such as one, three or five years. After that period is over, the rate may change based on the current interest rate enviroment. However, most contracts have a guaranteed minimum interest rate. In fixed annuities, there is no risk of principal loss.

Another variation of fixed annuities is a fixed indexed annuity. In an fixed indexed annuity, you earn interest, but the interest rate is linked to the performance of an external market index. Based on how the interest crediting is calculated, generally if a market’s index performs well, you may get more interest. If it performs poorly, you get less. However, you never lose money in an indexed annuity, even if the market has negative returns.

A variable deferred annuity is one in which your funds are invested in subaccounts, which are similar to mutual funds. Your growth is based on the performance of your investments. In most variable* annuities there is some risk of loss. However, some policies offer optional features that provide some level of downside protection.


What are the fees on deferred annuities?

There’s a common perception that annuities are high-cost investment tools. However, this often isn’t the case. Deferred annuities do have surrender charges. These are penalties that are paid if you surrender your contract or take a withdrawal over the free withdrawal provision during a specified surrender period, usually lasting 5-10 years after you open the contract. However, you only pay the surrender penalty in those instances.

Fixed and indexed annuities often have little or no fees outside of surrender charges. Variable annuities may have fees, but that’s true of many similar investment products. Often in a variable annuity you can choose from multiple features and benefits to adjust the cost.


Can you use a deferred annuity to generate retirement income?

You can create income from a deferred annuity in a variety of ways. One option is to annuitize the contract value. The insurance company uses the contract value, your age and other factors to calculate a monthly payment guaranteed for the rest of your life.

The other option is to take systematic withdrawals. This may be preferable to annuitization, because withdrawals don’t require you to forfeit your contract value. Some policies even have additional options that guarantee your withdrawals for the rest of your life.

Ready to learn more about whether a deferred annuity is right for you? Let’s talk about it. Contact us today at Trinity Financial. We can help you analyze your needs and identify the right strategies. Let’s connect soon and start the conversation.


*Investors should consider the investment objectives, risks, charges and expenses of a variable annuity and its underlying investment options. The current prospectus and underlying prospectuses, which are contained in the same document, provide this and other important information. Please contact an Investment Professional or the issuing Company to obtain the prospectuses. Please read the prospectuses carefully before investing or sending money.

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.

Annuities are insurance products backed by the claims-paying ability of the issuing company; they are not FDIC insured; are not obligations or deposits of, and are not guaranteed or underwritten by any bank, savings and loan or credit union or its affiliates; are unrelated to and not a condition of the provision or term of any banking service or activity

Guaranteed lifetime income available through annuitization or the purchase of an optional lifetime income rider, a benefit for which an annual premium is charged.  Annuities are long-term, tax-deferred vehicles designed for retirement and contain some limitations.

16695 – 2017/5/23

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