Here are some quick…

Annuity Basics

When you have an “annuity”, this simply means that you have an agreement with a company or organization to receive money on a set schedule. Usually, this interval means you can receive money for the rest of your life. Specifically, annuities can provide you with regular reoccurring monthly or annual sums.

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Importantly, the risks associated with annuities vary, based on which type of annuity you choose. For example, some annuities, such as fixed and index annuities don’t lose money if the stock market drops. However, variable annuities may lose money when the stock market goes down. Because we believe in safety as a core value, Choules Financial can help you select an annuity that provides protection. Additionally, the annuity products we offer can provide a reasonable rate of return** as well.

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Fixed Index Annuity Basics

A fixed index annuity (FIA) has the benefit of keeping your money safe because it doesn’t go up and down with the stock market. Instead, an FIA is an agreement between an insurance company and you. You contribute a lump sum of money. At the same time, the insurance company agrees to pay you an interest rate, based on an index. There is also a fixed term and a pre-defined schedule of payments.

Although your FIA index is linked to the stock market, your money will not be directly invested in the market. Therefore, if the market goes up, you can benefit from a reasonable rate of return.** Then, when the market goes down, you may not gain interest. But, importantly, you won’t lose your money. For that time frame, you would simply save your money instead of experiencing loss. As the law requires, the insurance company also sets aside a “reserve” as protection for your money. Hence, the contract and the strength of the insurance company is what protects you.

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There are two main stages of annuities: (1)Accumulation (2) Distribution. Accumulation is important in understanding annuity basics. This stage starts at the time you sign your annuity contract. Next, in the distribution stage, you can take out your income. Certainly, there are different terms with each annuity, including how much money you and take out, and when. Additionally, other details of an annuity contract may vary, too.


Also, annuities will start to grow based on which type of annuity you have. For example, fixed annuities earn at a specific interest rate. Conversely, variable annuities can actually lose value if the market goes down. Finally, index annuities (the type of annuity our firm tends to focus on), gives you the best of both worlds. First, you have the opportunity to get a reasonable rate of return.** And, secondly, your principal stays safe. Regardless of the type, annuity basics require a period of time for your money to grow. That's what the accumulation stage does.


Up next is distribution. At this point in your annuity agreement, you can take money out. Now, your annuity can pay you an income. In fact, you can choose to create a schedule of payments or simply get paid annually. Some retirees choose to be paid monthly or quarterly. Also, the term can be a lifetime term. You have choices around how and when to get paid. For instance, whether you'd like a guaranteed* income for life or would rather let your annuity grow without taking money out.

What to learn more about annuity basics?

We would love to teach you. Come join us at one of our seminars.
Or, contact us to schedule an appointment.
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Taxes and Annuity Basics

In the first stage of your annuity, the money grows tax-deferred. To put it another way, your money is non-taxable while it grows. In fact, taxes are paid only when the money is taken out. If you wish to reduce your current tax situation, an annuity may be helpful.

Additional tax benefits may be possible as well. For example, people under age 59 1/2 who get a lump sum from a former employer’s 401(k). In this situation, if your lump sum is part of early retirement or severance, you’d have to pay hefty taxes. But, if you convert that money to an annuity, you may be able to post-pone those taxes. Of course, you should always consult with a tax advisor about tax issues.

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