Annuities: Key Terms Every Investor Should Understand

December 30, 2023

Retirement might seem like a distant goal, but it’s never too early to begin planning for your golden years. Smart decisions now can help you build a secure financial future and enjoy the life you’ve built with your loved ones. Part of adequate preparations involves familiarizing yourself with all the common terminology used to discuss annuities, which many people utilize as part of a comprehensive retirement strategy. Empower yourself to prepare for the retirement you’ve always imagined by taking charge and staying informed — starting with this guide explaining what annuities are and the essential annuity terms every investor should know.

What Are Annuities?

Understanding how an annuity works is a significant step in retirement planning. Annuities provide you with a guaranteed income stream to enjoy in retirement. As you establish terms with your insurer, you can choose to receive a payment for life or a set number of years. 

Annuities come in various forms, and learning which type to choose and how the payments will affect your income is a significant part of planning your retirement. The types of annuities offered by 1891 Financial Life include:

  • Single Premium Immediate Annuity: Provides immediate income for life or a specified period.
  • Non-Qualified Annuity: A flexible annuity funded with after-tax funds.
  • IRA Annuity: A flexible annuity available as a three-year, seven-year, or 10-year certificate funded with pre-tax funds.
  • Roth IRA Annuity: A type of tax-advantaged individual retirement account to which you can contribute after-tax dollars.
  • 5-Year Multi-Year Guaranteed Annuity: A single premium annuity with a guaranteed interest rate for five years and included riders. 

Determining the best type depends on your unique financial situation, income, and retirement goals. Learning the terms is an excellent place to start understanding which to choose, but speaking with a knowledgeable representative to get some guidance is also helpful. 

Essential Annuity Terms Explained

Annuities may seem complex, but getting comfortable with the terminology can help you navigate retirement planning with greater ease. Some of the most common terms to know are:

  • Principal: The cost of buying the policy. Also known as the cost basis of the policy. 
  • Accumulation Phase: The time when the policy owner adds money.
  • Annuity Payout Distribution Phase/Annuitization Options: Choosing how the series of retirement payments gets made over time. 
  • Surrender Charges: Cost of withdrawals made before the end of the surrender charge period. 
  • Annuitization: Converting the accumulated value to a payment for life or a specified term. 
  • Death Benefit: Payment made to your designated beneficiary; generally protected from creditors.

Understanding the fundamental differences between annuity types is crucial to choosing the contract and terms that provide the greatest benefits for your retirement. 

Digging Deeper: Complex Annuity Terminology

Some additional terms it’s helpful to know include:

  • Guaranteed Minimum Income Benefit (GMIB): The minimum value of payments you receive. 
  • Riders: Features added to enhance the policy and provide additional benefits. 
  • Tax-Deferred Growth: You only owe taxes when making withdrawals. 

The deeper your knowledge, the more informed your retirement planning choices and control over your finances. 

Plan Now to Enjoy Life to Its Fullest

Retirement should be a time when you finally have time to engage in activities you’ve been putting off — from volunteering and traveling to spending time with the next generation. Identifying the best retirement strategy and implementing a plan will help you meet your long-term financial goals while building a nest egg for pursuing activities that feed your soul.

1891 Financial Life can help you decide which type of annuity is right for you, assessing the yield, interest rate, and your future liquidity needs. Contact us today to get started. 

About 1891 Financial Life

At 1891 Financial Life we don’t just sell policies, we offer possibilities. We pride ourselves on giving back to the communities that we serve by providing quality and comprehensive insurance solutions. We are a not-for-profit life insurance Society, which means the sales from these financial service products help fund member benefits along with social, educational, and volunteer programs designed to respond to community needs.

Our portfolio is extensive, ranging from various life insurance policies to our annuities to support your financial needs no matter what stage of life you’re in.