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What's An Annuity?
By Jack Gordon
An annuity helps you reduce the risk of outliving your assets by offering a series of guaranteed payments in exchange for a lump-sum payment with an insurer.
Fixed-period annuities (5, 10, 20 years or more) are used to fill gaps in income—the time between retirement and the beginning of a pension, for example. With a fixed-period annuity, payments will be made to you or your beneficiaries for the entire fixed period, even in the event of your death.
Lifetime guaranteed annuities offer payments that cannot be outlived. At the owner’s option, these payments can be guaranteed to be paid for a minimum number of years in case the annuitant dies prematurely. This supplemental guaranteed period can be 5, 10, 20 years or more. With a supplemental fixed-period guarantee, you will receive payments for life. If you die, the balance of the guaranteed payments will be made to your beneficiary.
A major consideration for immediate (payout) annuity shoppers is that, typically, once you buy, your access to that capital is gone. “At that point, you now own an income stream, similar to a pension,” says Paul Pflieger, director of annuity products management for Thrivent Financial for Lutherans. And when you die, depending on the type of annuity you purchase, the income stream from a lifetime annuity may not continue to flow to your heirs. However, you and your spouse can buy a “joint lifetime payout” annuity that provides an income for as long as either of you live.
Both lifetime and fixed-period annuities offer two payment options. Fixed payments mean you bear no market risk. The insurer guarantees a certain payment, and the same dollar amount will be paid as you had elected. Variable payments mean you tell the insurer how to allocate your capital among various subaccounts, similar to a mix of mutual funds. Your payments will vary according to investment performance.
There are many considerations to weigh, so consult your Thrivent Financial representative, Pflieger urges.
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