The Basics of Annuities

4 Basic Types of Annuities

DaVinci Wealth Presents The Basics of Annuities

Annuities can be intimidatingly complex for the amateur investor, but they are a powerful tool for managing risk and helping to guarantee lifetime financial success.

What Are Annuities?

  • An annuity is an contractual investment with an insurance company that takes a certain amount of money up front, either as a lump sum or a series of payments, and in exchange guarantees a series of future cash flows
  • The investor pays in during the accumulation period, and the annuity pays out during the distribution period
  • Annuities are illiquid, like bank CDs. Deposits are locked away for a period of time known as the surrender period
  • Growth on annuities is always tax deferred
  • Annuities are the only type of financial instrument that can guarantee an income stream for the lifetime of the investor
  • Annuities are used to protect against longevity risk, or the risk of outliving one’s assets, as well as to guarantee income streams to survivors
  • Annuity payments can be structured in a wide variety of ways to suit the needs of the investor, such as the duration of time that payments are guaranteed to continue and the structure and amount of the payments

The Four Most Common Types of Annuities Are

Annuity guarantees rely on the financial strength and claims-paying ability of the issuing insurer. Any comments regarding safe and secure investments, and guaranteed income streams refer only to fixed insurance products. They do not refer, in any way to securities or investment advisory products. Fixed Insurance and Annuity product guarantees are subject to the claims‐paying ability of the issuing company and are not offered by Retirement Wealth Advisors.