Annuities

What Is an Annuity?
An annuity is a contract between you and an insurance company. The insurance company invests your money for you, and, depending on your annuity, you may receive a regular payment based on the success of the investments. Income on annuities is not taxed until withdrawn from the contract, making annuities a tool to save for retirement.

Types of Annuities

The two main types of annuities are fixed and variable.

Fixed Annuities

A fixed annuity provides a guaranteed interest rate* for a fixed period of time. Here’s how it works: You give a check to an insurance company, and they invest it. The interest rate you are paid will be periodically adjusted up or down, but it will never go below the guaranteed rate. As a result, you will always receive a guaranteed minimum level of return.

Variable Annuities

A variable annuity is a contract with an insurance company where you give them either a lump sum or series of payments—and they return your money, usually after retirement, with a steady stream of payments. In the meantime, your money is invested and is free to grow, tax deferred, until you take the money out. Variable annuities provide more options for investing your money, so potential returns are higher than fixed annuities, but the risk is also greater.

Other Annuities

Within the categories of fixed or variable annuities, other options are available: Immediate Annuities An immediate annuity allows you to begin receiving payments within one month or up to 12 months from your annuity purchase date, depending on when you want to start this income stream. When purchasing an immediate annuity, you can tailor it to fit your personal needs, which includes choosing a payment option and frequency of the payments (monthly, quarterly, semi-annually or annually).

Indexed Annuities

An indexed annuity earns interest on the potential upward movement of an equity index and feature a minimum interest rate. This rate serves as a “safety valve” by providing growth even when the market performs poorly. These annuities are a popular option for people who want some of the growth potential of a variable annuity, but with less risk. Earnings are linked, in part, to a specific stock index such as the Standard & Poor’s 500™ Composite Stock Index.

Market Value–Adjusted Annuities

A market value–adjusted annuity spreads your premiums over different contract periods. The total value when you withdraw cash is linked to interest rates. If rates fall, your value could be higher. If rates rise, expect the opposite. These annuities have a greater potential to provide higher interest rates than the traditional fixed annuity. Allstate features a wide range of market value–adjusted annuities.

An Annuity Might Be Right for You If You:

• Have maxed out your contributions to 401(k)s and IRAs.

• Like the idea of having your annuity pay out periodically, like a paycheck, after you’ve retired.

• Have someone in your life you want to assure is taken care of financially after you are gone.

• Are comfortable leaving a chunk of your money untouched for at least 7–10 years.

• Are fairly certain you will not withdraw the money before you’re 59½.

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