Transcript, 2 minutes 30 seconds, for use during week of Nov.
Announcer: Invest Wisely comes to you from Iowa State University
Extension through a grant from the Investor Protection Trust,
providing investor education on the web at: investorprotection.org.
Description: Penny, Susan and Ira talk about annuities.
Ira: Penny, the more I read about annuities, the more confused
I am – Just what is an annuity?
Penny: An annuity is a contract between you and an insurance
company. In exchange for either a lump sum or a series
of payments, the insurance company agrees to make regular payments
for a fixed period of time, for your lifetime, or for the lifetime
of you and your beneficiary.
Susan: Do the payments begin immediately or at some time in
Penny: Annuities can be setup either way. Typically, annuities
offer tax-deferred growth of earnings. In most cases they
may also offer a death benefit which pays your beneficiary a
guaranteed minimum amount, such as your total purchase payments. Annuities
are usually purchased for future retirement income.
Ira: Are all annuities basically the same?
Penny: No -- There are three types of annuities--fixed, variable,
Susan: How are they different?
Penny: With a fixed annuity the insurance company guarantees
a fixed rate of interest for a specified period of time, say,
a period of 1 to 5 years after purchase. After that the
rate is adjusted annually according to market conditions.
Ira: And a variable annuity?
Penny: With a variable annuity, you select how you want to invest
your money from a range of investment options, typically mutual
funds. The rate of return and the amount of the payments
you receive vary depending on the performance of the investment
options you select.
Susan: So fixed annuities offer a fixed rate of return for a
certain period of time and a variable annuity has a rate of return
that varies depending on the investment options.
Penny: Yes. And equity-indexed annuities are more complicated. This
type of annuity pays a minimum guaranteed rate of interest, but
that rate may be higher if the index to which it is linked increases. Typically
it is linked to the S&P 500 stock index.
Ira: Thanks, Penny. As usual, this is very helpful.
Penny: You’re welcome and remember for more information
visit the ISU Extension website at extension.iastate.edu and
look for ‘invest wisely.’