Understanding Annuity Benefits

An “annuity” is defined as an agreement with a company or organization to receive money on a set schedule. An annuity may make an excellent financial vehicle for your retirement due to the benefits they come with. An annuity may be able to offer you safety, reasonable rates of return,** and simplicity. 

Fixed Indexed Annuity Benefits

An FIA comes with the benefit of keeping your money protected. This is because the money in it is not invested in the stock market. An FIA is an agreement between you and an insurance company. You contribute a certain amount of money, and the insurance company agrees to pay you interest based on an index. However, its value never decreases, because an FIA comes with a guarantee* of protection.

Stages of an Annuity

There are two main stages to an annuity: Accumulation and distribution

Accumulation is the stage during which the money in your annuity gains tax-deferred interest. Your annuity grows based on just what type it is. Fixed annuities earn a specific interest rate. Variable annuities rely on the stock market, and can actually lose value when the market is down. FIAs, finally, give you the opportunity to gain a reasonable rate of return** while still keeping your principal safe. This is why FIAs are the type that our firm mainly focuses on. They can give you the best of both worlds.


Regardless of what type of annuity you have, however, they require a waiting period for your money to grow.

Next is the distribution stage. This is when you’re able to take your money out. Your annuity can now provide you with income. You choose the scheduling of these payments: should they be paid yearly, quarterly, or monthly? Also, the term can be a lifetime term. You have choices around when and how much you get paid. Use this to your advantage.

Annuity Tax Benefits

During the first stage of your annuity, it grows, tax-deferred. Your money is essentially non-taxable income while it grows. It isn’t until you take the money out that taxes on it are paid.

Additional tax benefits may also apply: For example, for people under age 59 1/2, who get a lump sum from a former employer’s 401(k). If that lump sum is part of an early retirement or severance, you’d have to pay hefty taxes on it. However, if you “rollover” that money into an annuity, you may be able to postpone these taxes. Of course, you should always consult a qualified tax advisor about things like this.

Scroll to Top