Transcript:
Easan Arulanantham:
What is an annuity?
Tom Vaughan:
In very simple terms, an annuity is a tax deferred vehicle. So you can take money and put it in to an annuity, and it will grow without any taxes until you take it out. That annuity can actually be inside of a retirement account. So you can actually get a write off when it goes in. But it could also be outside of a retirement account. And you can put in really unlimited amounts of money come in a million dollars into an annuity, and it will grow without taxes until I take it out.
They’re offered by insurance companies. And there’s two major versions one is fixed annuity, where they pay a fixed return as part of the general account to the insurance company, they can pay a little more than CDs oftentimes, and it grows without taxes until you withdraw. And then there’s a variable annuity where you can actually go in and kind of buy different mutual funds and different things along those lines. And so that, you know, again, if I go from one fund inside that to another, I don’t have to pay tax, I don’t have to account for it a lot like an IRA. So those are interesting, they can have all kinds of different writers and different things on them to give more money to your beneficiaries, you know, lock in the highest level of your beneficiaries, income writers for life, there’s a whole bunch of different things that are out there. They can be quite expensive, right? And so that’s one of the reasons why I don’t think we need to use them as much as we did before it because there’s so many other vehicles now that are a lot cheaper, that kind of do the same things. And then you get your money out by just, you know, cashing it out or taking some out every month, a systematic withdrawal. Or basically you can take money for life for you and your spouse’s white life. Tenure certain just means that you know, get it for your life or 10 years, whichever is longer, you know, a lot of different ways to get the money out. But that in a nutshell, that’s an annuity.
The thing is, with annuities, each one’s unique. So it’s hard to it’s hard to dive into the weeds with them because they’re so complex. They are they’re all individual contracts, even within the same somebody who say, Oh, I have a Jackson annuity, okay. They probably have hundreds of different contracts. They’re all different. So it to be aware of that also.