In this weekend’s segment of Better Money on WFSB Channel 3, Joel Johnson, CFP® and Kara Sundlun discuss the different types of annuities and how they can be used in the context of a retirement plan.
Annuities are insurance products and guarantee income for as long as you live. There are four types:
This type of annuity offers protection of your principal from market losses. You get some of the upside in the good years, but you don’t lose anything in the bad years, meaning it won’t go down when the market does. It is designed to return 4 to 7%.
A Pension Annuity, or an Immediate Annuity, is bought by someone wishing to turn their pension into a form of income that will last the remainder of their life. There is an option to increase these payments each year to keep up with inflation, but it’s worth noting that doing this will result in a lower starting income.
An Indexed Annuity is a form of a Fixed Annuity, and its payouts are tied to stock indexes such as the S&P 500 and DJIA; this annuity’s performance depends on how the index is performing.
This annuity comes with high fees and is subject to high market risk. The payout may be low or high based on how the assets are performing.
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