An annuity can be a great way to save for retirement, but there are some things you should know before buying one. One of the most common questions is, “Can you lose money in an annuity?” The answer may surprise you! This guide will discuss the ins and outs of annuities and what you need to know before investing in one.
- Is It Possible For An Annuity To Lose Money?
- Annuity Principal Protection At A Glance
- You can lose money in a Variable Annuity.
- You can lose money in an Index-Linked Annuity (Buffer Annuity).
- You can not lose money in Fixed Annuities.
- You can not lose money in Fixed Index Annuities.
- You Might lose money in Income Annuities.
- What Is The Safest Type Of Annuity?
- Next Steps
- Related Reading
Is It Possible For An Annuity To Lose Money?
Annuity owners can lose money in a variable annuity or index-linked annuities. However, owners can not lose money in an immediate annuity, fixed annuity, fixed index annuity, deferred income annuity, long-term care annuity, or Medicaid annuity.
Annuity Principal Protection At A Glance
| Variable Annuity | Fixed Index Annuity | Fixed Annuity | Immediate Annuity | Deferred Income Annuity | |
|---|---|---|---|---|---|
| Principal Protection | No | Yes | Yes | Yes | Yes |
| Access To Principal | Yes | Yes | Yes | No | No |
| Control Over Money | Yes | Yes | Yes | No | No |
| Tax-Deferred Growth | Yes | Yes | Yes | No | No |
| Guaranteed Growth | No | Yes | Yes | No | No |
| Guaranteed Income | Yes | Yes | Yes | Yes | Yes |
| Inflation Protection | Yes | Yes | No | Yes | Yes |
| Death Benefit | Yes | Yes | Yes | Yes/No | Yes/No |
| Long-Term Care Help | Yes | Yes | Yes | No | No |
You can lose money in a Variable Annuity.
Variable annuities are investment-based retirement plans. You are investing in stocks, bonds, mutual funds, etc. If the investment performance is unfavorable, you will lose money.
You can lose money in an Index-Linked Annuity (Buffer Annuity).
The new index-linked annuities (not confused with fixed index annuities) offer the opportunity to lose money but with limitations. For example, most contracts have a buffer or floor limiting an individual’s yearly loss.
You can not lose money in Fixed Annuities.
Fixed annuities do not participate in any index or market performance but offer a fixed interest rate similar to a CD.
You can not lose money in Fixed Index Annuities.
Another insurance-based annuity allows owners to grow their retirement savings based on the positive movement of a particular stock or bond index while protecting against a stock market crash. Conversely, if the index performance is negative, the annuity’s value will stay at the exact value of the previous year (minus fees).
You Might lose money in Income Annuities.
Immediate and Deferred Income Annuities are income annuities that do not participate in any accumulation but rather a conversion of money into a stream of paychecks, either now or in the future. However, suppose an annuity owner selects a life-only payout and dies prematurely. In that case, beneficiaries may lose money because single-life annuities do not offer a death benefit in exchange for a higher income payment.
Helpful tip: Life insurance might be a better option if you want to leave money to your beneficiaries. You don’t have to take a medical examination in some cases. You can compare online life insurance quotes to find affordable coverage. Coverage starts at $9.37 per month.
What Is The Safest Type Of Annuity?
Fixed and fixed index annuities are the safest type of annuity. Here’s why:
- First, you are protected from stock market losses.
- Next, you have annual withdrawal provisions to access your money without a penalty.
- Finally, owners don’t give up control over their retirement savings to the insurance company.
With a fixed annuity, your principal is guaranteed, and you know exactly how much income you’ll receive each month. With a fixed index annuity, your principal is guaranteed, and your interest rate is tied to an index, such as the S&P 500, so you can participate in market gains without the risk of loss.
Both types of annuities offer annual withdrawal provisions that allow you to take out up to 10% of your account value without a surrender fee or penalty. And with a fixed or index annuity, you retain control over your retirement savings. The insurance company can never take away your money or change the terms of your contract.
That’s why fixed, and fixed index annuities are the safest type of annuity.
Next Steps
Annuities are complex financial products, and it is essential to understand their risks before making any decisions. Our experts help you make sense of annuity products and find the best one for your needs. Contact us today for a free quote on an annuity that will fit your retirement plan perfectly.
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