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Annuities

Client Centered

Like bonds, annuities have different classes and risks associated with each type. Similarly, the risk is either the entity issuing a bond, be it a government, either Federal, State, or local. They all guarantee the timely payment of interest and principal. A corporate bond is guaranteed by the revenues and hopefully profits of the corporation and/or its subsidiaries.

An annuity’s guarantee is backed by the claims-paying ability of the insurance company. Both an annuity and a bond should first be viewed from the lens of whether they are going to be there to pay. A Federal government or a state-guaranteed general obligation has a distinct advantage over a corporate bond or an annuity in that they have ad-valorem taxing power. This refers to the ability of a government to raise taxes to pay interest and principal.

Types of Annuities from Least Risky to More:

Immediate annuity or lifetime annuity

Fixed – like a cd or a bond with a maturity

FIA – Fixed Indexed Annuity

RILA – Retirement Index-Linked Annuity

Variable

Client Centered

Fixed and Variable annuities are suitable for long term investing, such as retirement investing. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply. Variable annuities are subject to market risk and may lose value. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. The market value of corporate bonds will fluctuate, and if the bond is sold prior to maturity, the investor’s yield may differ from the advertised yield.

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