Frequently Asked Questions

Annuity Basics

What is a fixed annuity?

Fixed annuities are insurance products that, after a single initial premium payment, earn a fixed rate of interest, allowing your money to grow on a tax-deferred basis until you decide to begin receiving annuity payments. Therefore, you can expect solid, guaranteed growth as long as the funds remain in the annuity until the end of any surrender charge period. Fixed annuities often offer multiple guarantee periods to align with your specific needs and guarantee the interest rate for the entire guarantee period you select. With fixed annuities, you can be confident that what you expect is what you will receive which is ideal for retirement planning.

Fixed annuities are sometimes known by other terms such as multi-year guaranteed annuities (MYGAs), fixed-rate annuities, fixed deferred annuities, and single premium deferred annuities.

What are the fees involved with annuities?

The most common fee associated with annuities are withdrawal charges. These are meant to protect the insurance company from having to liquidate investments earlier than the maturity on a contract. A withdrawal charge is assessed for each withdrawal before the maturity date. The withdrawal charge is determined based on the amount of time that has elapsed since the beginning of the applicable guarantee period and is calculated as a percentage of the account value at the time of the withdrawal, according to the schedule in the policy.

When is the best time to buy an annuity?

Annuities can be purchased at any time, but are typically best suited for individuals looking to protect and grow their savings in a low-risk product.

Why invest in an annuity vs 401K?

Annuities tax benefits are similar to a 401(k) in that they can grow tax-deferred but do not have limits associated with them.  For example, the deferral limit in 2021 for a 401(k) is $19,500, whereas annuities has no limit.

How is an annuity paid out?

Annuitization Payment Options Typically Available:

  • Payments for Fixed Period of Time Option
  • Life Income Option
  • Life Income plus Fixed Period Option
  • Payments of Fixed Amounts Option
  • Joint Life Income Option
  • Other Payments Option

Benefits of Annuities

What are the benefits of annuities?

  • Income & Growth: Fixed annuities are designed to help grow your retirement income typically at higher interest rates than those offered for financial products. With a fixed annuity, income is tax-deferred until you access it, allowing your money to grow and compound faster than products that are subject to annual income tax.
  • Access & Liquidity: People often purchase fixed annuities to grow their retirement savings or provide lifetime income payments – but you can also get access to your money through flexible withdrawal terms and available riders.
  • Principal Protection: Since fixed annuities are contracts with insurance companies, your principal and interest are protected. And protecting your income and savings is an important step toward achieving your retirement goals.
  • Succession Planning: Fixed annuities can help families plan for the next generation, providing you a way to pass assets to your beneficiaries that may help avoid the lengthy probate process.

What does tax deferment mean?

Put simply, tax deferment, or tax deferral means delaying paying taxes on any interest until funds are withdrawn. Tax deferral is a powerful way to increase retirement income. Tax-deferred retirement solutions allow you to defer paying taxes on investment earnings until withdrawn. The power of this deferral can be significant over time because your savings will have an opportunity to compound by realizing earnings on earnings with taxes on those earnings being deferred.

Types of Annuities

Fixed vs variable annuity?

Fixed annuities guarantee protection of premiums and a rate of return.  Variable annuities provide access to underlying investment options, where the policy owner bears the risk of any loss of premium from the performance of the underlying investment options. Fixed annuities will typically offer the policy owner protection of their premium and some rate of return and are considered very safe. Variable annuities are higher risk in that the policy owner could lose some of their premium, but also offer more upside if the underlying investment options appreciate significantly. Both fixed and variable annuities are tax-deferred.

What are the most common types of annuities?

There are different types of annuities to choose from, each offering specific features that help meet a range of retirement needs. Identifying which type of annuity is right for you will depend on your individual goals, your timeline for retirement, and your short- and long-term financial needs.

Annuity types include:

  • Fixed Annuities
  • Fixed Index Annuities
  • Variable Annuities

Ohio State Life offers fixed annuity products specifically designed for individuals in retirement or nearing retirement.