Home Business What Is an Annuity? The Complete Guide to Understanding Annuities

What Is an Annuity? The Complete Guide to Understanding Annuities


An annuity is a financial contract with an insurance company that promises to pay the buyer a steady income in the future. Annuities help with retirement planning. Every retiree gets the benefit of a steady income stream in retirement. Various types of annuities are available, so research is essential before deciding on an annuity.

If you want guaranteed income for life with annuities in San Diego County, you should look for a financial advisor to make the right decision for your retirement planning. This comprehensive guide will discuss annuities and why they might be the best option.

What Is An Annuity?

An annuity is a contract between an insurance company and a consumer which is created mainly for retirement planning purposes. Insurance companies promise to pay a regular income to owners during retirement for a certain period or the rest of their life.

Can You Lose Your Money In An Annuity?

Annuities are long-term investments made for retirement planning and are divided into two categories:

• Insurance-based annuities
• Investment-based annuities

In insurance-based annuities, you can not lose your principal amount. Most annuities are insurance products, and insurance-based annuities protect against market risk. Therefore you can not lose your money in insurance-based annuities. The examples of insurance-based annuities are:

• Traditional Fixed or an MYGA
• Fixed Indexed Annuities (Equity Indexed Annuities)
• Long-Term Care Annuities
• Single-Premium Immediate Annuities (SPIA)
• Deferred Income and Longevity Annuities
• Qualifying Longevity Annuity Contract (QLAC)

On the other hand, investing involves risk. You can lose your principal amount in investment-based annuities. Investment products are investing in bonds, stocks, and mutual funds. The examples of investment-based annuities examples are:

• Variable annuities
• Buffer annuities

How Do Annuities Work?

When a person decides to go with an annuity, they must pay a premium to the insurance company. The owner of an annuity gets a contractually bound series of funds and benefits of the policy. If a person dies, then the insurance company provides the remaining funds (if any) to the designated beneficiary. Briefly explained below:

In annuities, there is longevity risk; the company counts on the owner of the annuity to live long enough. They use the premium to purchase the retirement plan and earn interest.

Accumulation Phase: First accumulation phase comes, and your annuity income grows before paying you a retirement income.

Distribution Phase: This is where you start receiving income from your annuity. You can receive payments or make lifetime withdrawals from the annuity company.

You can get a Guaranteed Income for Life with Annuities in Los Angeles County with a reputable insurance company. Make sure to take advice from a financial advisor before investing in an annuity.

The Primary Benefits Of An Annuity

Retirees get the guaranteed income from annuities, and annuities provide future payments for pre-retirees. We have mentioned three primary benefits of annuity insurance:

1. Provide Guaranteed Income – the ultimate purpose is to secure the investor’s financial future by ensuring they will get a steady income stream in retirement. You can get inflation protection with the help of annuity insurance. they will pay the guaranteed retirement income to you over a set of period or for the rest of your life

2. Tax-Deferred Growth – the most effective benefit of an annuity is that annuity investments are tax-deferred. It means that your retirement savings will not be taxed until you make a withdrawal. This annuity retirement plan shares a common tax treatment known as tax deferral.

3. Safe and Reliable Income – Annuities are the safest available for investing and planning for retirement. There is less risk and volatility. You can also choose the frequency of payouts; it can opt for monthly, quarterly, or yearly streams. You can get guaranteed income for the rest of your and your spouse’s life. In case of death, you can opt for a return of the purchase price.


Investing in annuities for retirement is a good investment, but before investing, you must ensure that you get an annuity plan from a reputable and trustworthy insurance policy. Don’t pick any random company for making your retirement investment. If you want to get guaranteed income for life with annuities in Santa Barbara County, then get in touch with Tax-Free Retirement Specialists. They can provide you with the best solutions for your retirement plan.


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