Buying an Annuity

There are several types of annuities available, each with distinct features, benefits, and tradeoffs. Different types of annuities are designed for different retirement needs, such as guaranteed growth, protected market participation, or a reliable stream of lifetime income.

Fixed Annuities (MYGAs)

A fixed annuity, often called a Multi-Year Guaranteed Annuity (MYGA), offers a guaranteed interest rate for a predetermined period of time, typically two to 10 years. Fixed annuities usually are a good retirement savings vehicle for someone nearing retirement, who is seeking guaranteed growth and tax deferral.

Fixed Indexed Annuities (FIAs)

A fixed index annuity is a safe, fixed annuity product, but with market-linked growth. With FIAs, your principal is protected from market losses because your investment is not directly invested in the market. It is for those who want to grow their investment based on market performance without exposing their principal to market losses.

Variable Annuities

Variable annuities allow you to invest directly in market-based subaccounts similar to mutual funds. Growth potential is higher, but account values can rise or fall with market performance, meaning greater downside risk.

Income Annuities

An income annuity is designed to turn your savings into a guaranteed stream of income with the option to set when payments begin, either right away (immediate annuity) or at a future date (longevity annuity). Income annuities typically are a good retirement savings vehicle for someone who is looking to lock in guaranteed income for life, rather than accumulating retirement savings.

There is also a Qualified Longevity Annuity Contract (QLAC), which is a specific type of longevity annuity designed for individuals who want to use only qualified savings to secure future income, with payments beginning after age 73 and no later than age 85. The QLAC designation also exempts these annuities from the standard RMD rules.

When nearing or entering retirement, one of the main challenges people face is around protecting the retirement savings they've spent years building. That's where annuities can help. Each annuity type is designed to address a different retirement need. With the right strategy in place, retirees can focus more on enjoying retirement and less on managing financial uncertainty.

Benefits of Buying an Annuity

Benefits of Buying a MYGA

Fixed annuities (MYGAs) are a useful tool for retirement savings. They provide a safe, tax-advantaged way to earn a good return on savings needed in the future.

Guaranteed, Strong Return

The money you invest in a fixed annuity will accumulate at a fixed rate, which is specified upfront and guaranteed until the end of the rate guarantee term.

Tax-Deferred Growth

From the government's perspective, an annuity is a retirement savings vehicle. No taxes are paid until distributions are made. For a fixed annuity, this means that interest will accumulate and compound without incurring annual taxes.

Principal Protection

Unlike with most other investments, there is no market risk associated with a fixed annuity. Your principal is protected and guaranteed to accumulate at a fixed rate, making fixed annuities a good place to park retirement money you don't want to risk losing.

Some Liquidity

Fixed annuities provide some liquidity, typically making interest earned or 10-15% of the contract's cash value available penalty-free annually if you're over 59½. The rest of the contract is available, but subject to surrender penalties.

Easy to Understand

There are a lot of complex products, but a fixed annuity is one of the easier ones to understand. Assuming you leave your money in the fixed annuity until its guaranteed rate term ends, all you need to know is (1) how long until your money is available and (2) what your return will be over that period of time. There are no hidden fees that you need to worry about.

Penalties for Withdrawals Under Age 59½

Fixed annuities are really meant to be used for retirement savings. The IRS issues a 10% penalty on gains withdrawn from a fixed annuity for account holders under age 59½.

Benefits of Buying a FIA

Fixed indexed annuities (FIAs) may be the right choice for several reasons:

Tax-Deferred Growth

Annuities are designed as long-term retirement savings vehicles. Earnings grow tax-deferred, meaning you do not pay taxes until money is withdrawn from the contract.

Market-Linked Growth with Principal Protection

FIAs offer the potential for growth while helping protect your principal during market downturns. Interest is credited based on the performance of selected market indices, allowing you to benefit from market-linked growth without being directly invested in the stock market.

Benefits of Buying an Income Annuity

Figuring out how long your retirement savings needs to last is difficult. Guaranteed lifetime income can provide you with peace of mind through a paycheck that you won't outlive.

Longevity Protection with Guaranteed Income

Insurance is typically thought of as something you buy to protect you and your family from unfortunate events. By turning your assets into income that you can't outlive, the annuity offers a more pleasant kind of protection: longevity insurance. The longer you live, the more financial value the income annuity provides.

Simplified Asset Management

Adding an income annuity to your portfolio can dramatically simplify your retirement planning. Knowing that you'll be receiving a steady paycheck, which could cover all or a portion of your expenses, makes it easier to manage your remaining assets. The certainty of guaranteed future income can completely change your approach to investing, withdrawing, and spending.

Spousal Benefits

Income annuities can be set up as joint annuities, which means that payments continue as long as either you or your spouse are alive. Structuring the contract like this is a great way to preserve financial stability and quality of life for the surviving spouse.

Lifetime Annuity Protection for Contributions

The savings that you allocate to an income annuity is protected from swings in the stock or bond markets. And, by selecting a death benefit option, you can guarantee that all of your savings will be passed onto your beneficiaries if you pass away prematurely.

Clear Annuity Income Structure

Income annuities have a simple structure. For any amount of premium you would like to put into the contract, the insurance company will tell you how much monthly income they can offer. There are some decisions you'll have to make that affect the level of income, but that's it. The income is net of the insurance company's expenses and the commission collected by the distributor.

Choose the annuity type that aligns with your financial and retirement goals.

Once you understand what you want your annuity to accomplish, you can better determine which type may be right for you. There are several types of annuities available, each offering different features, benefits, and tradeoffs.

If you're unsure which option best aligns with your goals, we can help guide you through the process. You can also connect with a licensed annuity specialist to discuss your questions and explore your options.

Compare available options by annuity type.

How to Compare MYGAs

There are three important considerations when selecting a MYGA:

Guaranteed Rate

This is the effective annual rate that your money is guaranteed to grow during the investment term, assuming you hold the contract to the end of the term.

Insurer Rating

An insurer's financial credit rating measures their financial strength and ability to meet future obligations. The rating indicates the credibility and ability an insurance company has to repay any claims to customers. Our site uses the ratings of A.M. Best, which specializes in the insurance industry.

The A.M. Best rating categories are as follows:

• A+, A++ are a superior rating
• A, A- are an excellent rating
• B+, B++ are a good rating
• B, B- are a fair rating
• C-D ratings are rated marginal to poor

Investment Term (Contract Length)

Terms range from 1 to 10 years. During that period of time, you'll receive a guaranteed rate but will have limited access to your funds. Generally speaking, the longer the contract term, the higher the rate; however, there may be some exceptions to this rule based on the availability of some intermediate terms.

How to Compare FIAs

With a fixed indexed annuity (FIA), you will typically choose:

• The contract term or length of your contract
• The market index tied to your growth potential, such as the S&P 500®
• The crediting and indexing methods used to determine how index-linked interest is calculated

Crediting Methods

With FIAs being market-linked versus a direct market investment, the insurance carrier sets some predefined rules to determine how much interest you'll gain based on index performance. The four most common crediting methods are cap rates, participation rates, performance-trigger rates, and spreads.

You may choose to allocate your entire purchase amount to one interest-crediting option or a combination of options. The amount of money you allocate to each one is up to you.

Indexing Methods

In addition to a crediting method, a FIA also has an indexing method which determines how the insurance carrier measures the index performance before applying the crediting methods. These are usually set at one-year, which means that interest is credited annually based on the index return over one contract year. At the end of the contract year, you have the flexibility to reallocate your contract value however you choose or keep the same allocations. The most common measuring methods are point-to-point and monthly averaging.

How to Compare Income Annuities

There are three types of income annuities. All provide a steady, guaranteed paycheck for life, but they differ in when that income starts and the money used to fund them.

• Immediate annuities (single premium immediate annuities or SPIAs) provide income starting within 12 months. They are for those about to retire or already retired.
• Longevity annuities (deferred income annuities or DIAs) provide income starting more than one year from now. Payments begin later, allowing the premium more time to grow before income starts. They are for people still working or planning ahead.
• Qualified longevity annuity contracts (QLACs) are longevity annuities purchased with only qualified savings (Traditional IRA or 401(k) rollover) with income starting after age 73 but before 85.

The income offered on income annuities will vary over time as market conditions change, being driven most notably by longer-term Treasury and investment grade corporate bond yields. In addition, your personal attributes (age, gender) and the policy options you select will impact the quote.

Understanding how your personal attributes and the options you select drive quotes enables you to structure the policy to best suit your needs.

Complete your annuity purchase.

Once you've identified the annuity type that aligns with your goals and compared your options, the final step is to complete your purchase.

Annuities are typically purchased through a licensed insurance agent or financial advisor; however, with Blueprint Income, you can buy directly online. Blueprint Income is an online annuity marketplace that lets you compare products from multiple insurance companies in one place.

If you'd like guidance, we have a team of licensed annuity specialists who are available to answer questions, help with paperwork, and support you in your decision-making. Schedule a call with a Blueprint Income annuity expert today or view our full list of FAQs.

Of all the annuity types, a fixed annuity (MYGA) operates very similarly to other common savings products such as a certificate of deposit (CD) or a high-yield savings account (HYSA). In fact, fixed annuities can often provide higher guaranteed rates, along with tax-deferred growth.

Compare today's rates and earnings between MYGAs and CDs

Income annuities are increasingly being offered as an option within workplace retirement plans, such as 401(k)s. These annuities allow employees to convert their retirement savings into a steady income stream upon retirement. Employers may offer income annuities as part of their retirement benefits package, helping employees secure lifetime income and reduce the risk of outliving their savings.