Beginner’s Guide to Annuities

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In this Article

When you picture your dream retirement, what does it look like? Would you like to travel, or purchase a new home? No matter what your plans are, you probably want the financial security of knowing you’ll receive a guaranteed income stream every month.

Although Social Security payments provide regular payments, chances are that this amount won’t allow you to live the retirement of your dreams. That’s where an annuity comes in: Choosing an annuity offers you peace of mind, security, and a guaranteed income during retirement. 

What is an annuity?  

An annuity is a contract between an individual and the insurance company. The contract, once it’s “annuitized,” requires the company to make regular payments to the individual either now or in the future. Many people use annuities as a source of guaranteed income in retirement.

An annuity can provide a series of payments later in life or you can start receiving payments immediately.

Choose an annuity that fits your financial goals

benefits of annuities

There are many different types of annuities on the market today. Some offer protection from market swings while others offer growth potential with funds that are tied to the market. It all depends on your budget, goals, and your preference when it comes to your money.  

How annuities work 

When you purchase an annuity, the insurance company promises to pay you a steady stream of income for the rest of your life. This income is guaranteed regardless of how long you live or how much the market sways over the years.

There are two main types of annuities: income annuities (turning your assets into guaranteed, scheduled payments) or fixed annuities (purchased with a lump sum payment, sometimes tied to an interest rate, and provides guaranteed income now or later).  

Immediate vs. deferred annuities

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For some annuities, you’ll have a choice between an immediate income annuity or a deferred income annuity.

An immediate income annuity is purchased with one payment and income begins right away, while a deferred income annuity is purchased during one or several payments and your guaranteed income stream begins on a date of your choosing. Both options provide lifetime income, but they differ in that a deferred income annuity could provide growth based on interest.  

Why you need guaranteed income in retirement  

Rather than just relying on Social Security or funds from a standard 401(k) or IRA, adding an annuity to your retirement savings plan can help you prepare for whatever life brings while having a little more flexibility in your income stream once you’re retired. 

With an annuity, you won’t have to withdraw a specific amount each year as you would with an IRA, and you won’t have to face the risk of market loss in the event of an economic downturn.  

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Read More on Annuities

To learn more about how annuities can help you achieve your retirement goals, read our article on the benefits of annuities. 

Guaranteed income from an annuity can cover: 

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Day-to-day expenses

You can use funds from your annuity to cover your daily costs such as groceries, shopping, and any other leisure activities you’d like to enjoy in retirement. 

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Travel or charitable causes

 If you’ve always wanted to travel, you can set aside funds from your annuity to buy the plane ticket and visit your dream location. You can also use your annuity to donate to a charitable cause of your choice later in life. 

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Emergency expenses

 You never know what life will bring, which is why it’s important to have diverse options available when it comes to retirement funds. Your annuity payouts could help contribute to medical or unexpected expenses, supplementing payouts you receive from your retirement fund or Social Security check.

Your annuity checklist  

When you first start shopping around for an annuity, you will want to be clear about your goals for retirement and how much of your current budget you can allocate towards your goals. Many people find it helpful to consult with a licensed agent who can explain the tricky parts of annuities and help them find the best option based on their budget and goals.  

You’ll want to ask yourself these questions when you decide to start shopping for an annuity:

  • How diverse is your retirement income – do you have a 401(k), a savings account, other means of guaranteed or non-guaranteed income for retirement?
  • How would an annuity strengthen your current retirement plan?
  • How much money will you have saved to cover emergency or medical costs by the time you’re ready to retire? Is it enough?
  • How will taxes affect your retirement income?  

Your retirement should be filled with excitement, adventure, and confidence in knowing that your income is protected and guaranteed. An annuity can do just that.

Get on track to your dream retirement – fund your annuity today

If you want to find an annuity that can help you answer these questions and more, we’re always here to help. And with Quility, you never have to sacrifice a top-notch product for affordability. We partner with more than 80 insurance companies to help you find an annuity that solves all your needs.

Connect with a licensed agent today – your Quility insurance advisor can present your options and help you get a plan in place in just a few simple steps.

Let’s Get Started

Take a confident step towards retirement savings today.

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Calie Brummer
Head of Digital Communications
Calie Brummer is a staff writer and Head of Digital Communications at Quility Insurance with a focus on financial well-being and life insurance solutions.