Term Certain annuities

In simpler terms, an annuity is a contract you make with an insurance company. Here’s the gist:

Think of it like flipping the script on retirement savings. Instead of saving money now to spend later, you’re giving money to the insurance company now, and they guarantee you’ll receive payments later in life.

There are different types of annuities, each with its own features, but the core idea is the same: you trade a chunk of money upfront for guaranteed income down the road.

Let’s say you’re 50 years old and nearing retirement. You’ve saved $100,000 and want a guaranteed income stream to supplement your Social Security benefits for the next 15 years. Here’s how a term annuity could work in this scenario:

Your Investment

You invest your $100,000 into a 15-year term annuity.

Payout Option:

There are different payout options, but let's assume you choose a level payout, meaning you receive the same amount of money each year for 15 years.

Insurance Company's Calculation:

Based on the current interest rate, your investment amount, and the 15-year term, the insurance company calculates your annual payout.

Example Payout:

Let's say the calculation determines you'll receive $9,000 per year for 15 years.

In this example:

They guarantee you $9,000 per year for 15 years (totaling $135,000).

You give the insurance company $100,000 upfront.

Key points to remember:

Unlike a life annuity, the payments stop after the chosen term (15 years in this case).

You wouldn’t receive any income after the 15 years are up.

Term annuities are generally used to supplement income for a specific period, like your retirement years until you can access your retirement savings.