An annuity is a contract between the client and an insurance company in which the client makes a lump-sum payment or series of payments and, in return, receive regular disbursements, beginning either immediately or at some point in the future, typically during retirement. Funds accrue on a tax-deferred basis and like 401K contributions— it can only be withdrawn without penalty after age 59½. There are three major types of annuities.
*Fixed Annuities pay out a guaranteed amount. This type of annuity comes in two different styles—fixed immediate annuities, which pay a fixed rate right now, and fixed deferred annuities, which pay you later.
* Variable Annuities provide an opportunity for a potentially higher return, accompanied by greater risk. In this case, you pick from a menu of funds that go into your personal “sub-account.” Here, your payments in retirement are based on the performance of investments in your sub-account.
*Fixed Index Annuities fall somewhere in between, when it comes to risk and potential reward. Contract owners receive a guaranteed minimum payout, although a portion of return is tied to the performance of a market index, such as the S&P 500. Most FIA offer income ride which could provide clients highest income withdraw guarantee.