My response to that question is, “It depends.” It depends on an individuals personal and financial goals, such as, “How much risk/return do I need from my investments,” “How much income do I need during retirement,” “Do I need to live on this money or do I plan to leave it to my heirs,” “Do I have money for emergencies,” “Are my investments diversified enough.” Folks need to ask themselves these questions or have a financial professional assist them with their plans.

To begin with the basics, what is an annuity?

• An annuity is an insurance product. It is a contract between an individual and an insurance company.

• It is designed to pay an income stream to the contract holder, usually after retirement.

• All annuities are tax deferred, meaning that the earnings from investments in these accounts grow tax-deferred until withdrawal.

• Annuities avoid probate if the beneficiary designation is set up properly.

• When funds are withdrawn they are subject to ordinary income taxes.

There are three different types of annuities:

• Fixed Annuity – offers a fixed interest rate. Also may offer bonus rates and is required to offer a minimum guaranteed rate of return.

• Variable Annuity – the investment return is a result of fund performance in the stock market. There is potential for a greater return but also a risk of losing principal and interest.

• Fixed Indexed Annuity - an indexed annuity is a fixed annuity, either immediate or
deferred, that earns interest or provides benefits that are linked to a stock market index. However, the funds in the contract do not actively participate in a stock or index. There is no risk of losing principal or interest previously credited.

If you are interested in more information about annuities you can go to the National Association of Insurance Commissioners (NAIC): http://www.insurance.insureuonline.org/, to order a consumer guide about annuities.

James J. Speir is the owner of Speir Financial Services, LLC and founder and President of the Senior & Caregiver Resource Network. James can be reached at (888) 458-0667 or james@speirfinancial.com. This information is not intended to provide investment advice.