Understanding the Basics

Let’s discuss: what is An Annuity?

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What is an Annuity?

So, what is an annuity? An annuity is an insurance contract intended to provide regular income in retirement. There are several types of annuities. The most common types are fixed, variable, immediate, and deferred. Each annuity offers features that may be beneficial to your retirement strategy. 

Fixed Index Annuities

Fixed index annuities (FIAs) provide a guaranteed* retirement income stream as well as a way to save for retirement.

With FIAs, retirees can earn interest without the risk of losing money in the market. In addition, they have higher growth potential and lower risk than variable annuities.

FIAs track the performance of an index, such as the S&P 500 or Nasdaq. So, they provide some of the same benefits as index funds, but they are not directly linked to an index. The reason is that an FIA is an insurance policy and not an investment. Therefore, fixed index annuities generally protect your principal from loss even when the market declines. 

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Two Phases of Annuities

There are two stages of an annuity

All annuities go through these two phases, though their details differ. First, there is the accumulation phase and then there is distribution. 


When you allow your retirement money to grow, you accumulate value.  Regardless of market conditions, a fixed index annuity will grow with a set interest rate.  In addition, FIAs may result in higher returns when the index rises while protecting your principal when the index declines. As a result, your money grows over time.


The distribution phase is when you begin receiving regular income payments from your annuity.  Annuities are usually paid quarterly, annually, or monthly. The option of receiving lifetime income is available as well. You can withdraw certain annuity payments without penalty.

Taxes And Annuities

Your money grows tax-free* as it accumulates. You only pay taxes when you withdraw money. Therefore, if you want to minimize your tax liability, this can be very helpful.

Contact us if you live in Chicago, Hoffman Estates, Glenview, or the surrounding areas of Illinois to learn more about “What is an annuity?”

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