As poll after poll shows, running out of money after retirement remains a major concern for many. Annuities were created to prevent this situation (known as superannuation) by guaranteeing your investment and offering a lifetime income stream that you are guaranteed not to outlive.
In return for this, you promise to follow certain rules such as how long you have to wait to begin receiving payments, how much you take out per year, and whether and when you can withdraw your principal, free of penalties.
Annuities are not typically designed to be high growth investment products as much as insurance against running out of income, but can you actually lose money investing in an annuity?
Lets start by looking at the three most common annuity types, FIXED, INDEXED, and VARIABLE. Each offering different levels of potential of risk and reward.
Fixed Annuities: When you purchase in a FIXED ANNUITY, the insurance carries guarantees that you cannot lose either your principle (the money that you put into the annuity) or any interest that the annuity has accumulated.
Fixed Indexed Annuities: When you purchase in an INDEXED ANNUITY, the insurance carries guarantees that you cannot lose your principle and in addition, each year, on the purchase anniversary, your gains are locked in (known as an ANNUAL RESET), which then becomes the starting point for the next year. Because the interest earned is "locked in" annually and the index value is "reset" at the end of each year, future decreases in the index the will not affect the interest you have already earned.
Variable Annuities: Variable annuities are very similar mutual funds, neither your principle nor investment gains are protected against market fluctuations. When you invest in variable annuity, the carrier with put your money in investments such as mutual funds. The value of your annuity changes based on the performance of those investments. As these investments go up or down, the value of your variable annuity will also rise and fall. This means that it is possible to lose money, including your principal with a variable annuity if the investments in your account don't perform well. Variable annuities also tend to have higher fees increasing the chances of losing money.
For an in-depth explanation of annuity products and to get a free comparison of quotes from the highest-rated insurance providers, Click Here
Request a call from us
Our friendly staff is here to answer all your annuity related questions. Simply fill out the form to the right and one of our team members will contact you shortly (typically between 5-10 minutes during business hours).