According to the Small Business Administration’s Office of Advocacy, there were 30.7 million small businesses in 2019. These companies employed nearly 60 million people in fields such as retail, healthcare, and tourist industries.
If you’re one of the nation’s many small business owners, you’re probably accustomed to working hard, and retirement may not be on your mind. After all, you don’t have an employer to offer you a retirement package. Thanks to annuities, though, retirement is still an option for entrepreneurs. Here’s what you need to know about these investments and the difference between fixed and index annuities.
What Are Annuities?
Index and fixed annuities share several characteristics. Both of them are policies that you take out with banks or insurance companies. You pay into these policies for a while and, when your payment period begins, your provider gives you income payments. The size of these payments depends on the size of your premiums, your policy’s rate, and the length of time you’ve paid into your policy.
Generally, it’s best to invest in annuities as soon as possible so that you have plenty of income after you retire. If you make a lot of money late in your career, though, you can put a lump sum into an annuity rather than investing over time.
What Is a Surrender Period?
Fixed and index annuities both have surrender periods. This period lasts between six and eight years after you take out your policy. During this time, your provider can charge you if you take money out of your annuity.
What Is the Greatest Difference Between Fixed and Index Annuities?
The biggest difference between a fixed and index annuity is whether you receive the same amount of money with each income payment. For fixed annuities, you receive a regular rate throughout your entire contract, and you know exactly how much money you’ll get each payment period. For index annuities, your rate of return varies based on how your portion of the stock market is doing. For example, if your index annuity is tied to a car company’s stock and that company is thriving, your payments increase.
What Are the Benefits of Both Kinds?
The benefits of a fixed annuity include simplicity and stability; there are no surprises because your rates stay the same no matter what happens to the stock market. Additionally, your unused payments usually carry over to your heirs if you pass away without using all your money.
Index annuities also have many benefits. They come with minimum payments, so you don’t need to worry about losing all your money if the stock market crashes. Also, if the stock market does well, you could receive much more money than you initially invested.
About Brooks, Todd & McNeil
Since 1839, the independent agents at Brooks, Todd & McNeil have been pleased to offer our community the best and most affordable policies from a variety of providers. Our dedicated facilitators are ready to put their 75 years of combined experience to work on your claims. To learn more about our products and services, contact us today at (800) 448-4567.