Annuities

Types of annuities

Fixed annuities

A fixed annuity will allow you to make one or multiple payments to an annuity, which in turn gives you a fixed return on your contributions regardless of fluctuations in the market.²

There is less risk involved in a fixed annuity, which appeals to those who are new to annuities or want simplicity. Because there’s more predictability, you can count on stable growth with declared fixed rates of interest.²

Fixed annuities guarantee you’ll earn at least a minimum interest rate. There are several different factors that affect interest rates, such as general economic conditions, the type of annuity and the insurance company. For immediate annuities, your age and life expectancy at the time the annuity was purchased are also factors.³

Immediate vs. deferred annuities

An immediate annuity will start making payments within the first year or as soon as 30 days, depending on your contract. A deferred annuity allows you to accumulate funds with an option to convert to income later.

Deciding if a deferred annuity is right for you depends on the amount of money you have to invest, when you want to start receiving payments and when you need to access your funds.

Amica offers the following annuities:

• A Multi-Year Guaranteed Annuity (MYGA)⁴ is similar to bank CDs, and may be an option for those closer to retirement. With an Amica MYGA, you can make a minimum $10,000 lump-sum contribution, with an option to add money in the first year, which grows tax-deferred with a guaranteed interest rate, typically lasting three to seven years. At the end of the guarantee period, you can withdraw your money, renew for a new guarantee period or convert your annuity to income.
• A Flexible Premium Deferred Annuity⁴ (FPDA) is a way to save money over time by opening an account now with a minimum contribution of $5,000, and then making contributions on your own schedule until you retire. You can then withdraw your funds or convert it to income at a later date.
• A Single Premium Immediate Annuity⁵ (SPIA) may be an option if you’re retired or close to it. With a SPIA, you can convert a lump sum of money into a guaranteed stream of payments immediately.

Benefits of annuities

Annuities come with several advantages that you won’t get with a 401(k), IRA or savings account. There are several pros and cons of annuities to evaluate. Consider these benefits when deciding if an annuity is right for you.

• Stability: Accumulate your funds on a stable basis, with the option to withdraw your money or convert it to income later.
• Guaranteed income: All annuities can provide payments that will be sent to you for a specific period of time or for the rest of your life.²
• Flexibility in payout options: Your payments can start right away or over time.²
• Tax-deferred growth: Most annuities allow you to make tax-deferred contributions.² 
• Death benefits and legacy considerations: Your beneficiaries can receive a lump sum from your annuity after your death.²

Factors to consider

Deferred annuities are flexible. You can fund them with smaller deposits or make a lump sum contribution; either way, your money will grow tax deferred until you start receiving payments.

If you opt for an immediate annuity, you invest a lump sum of money and start receiving payments immediately.

• Flexible Premium Deferred Annuity (FPDA): First-year contributions, contributions after the first year, income later.
• Single Premium Immediate Annuity (SPIA): First-year contributions, income now.
• Multi-Year Guaranteed Annuity: First-year contributions, income later.

Take the following factors into consideration when choosing your annuity:

• Risk tolerance and investment goals: Aligning your risk tolerance with your investment goals is essential for determining which annuity is right for you. Your risk tolerance can be influenced by your age, personal circumstances, financial capacity and investment experience.⁶ Before you invest, it may be beneficial to speak with a financial professional.
• Liquidity needs: Review your finances carefully. Be sure that the money you’ve set aside for the annuity will not be needed elsewhere. Consider how much you have to invest. Are you contributing money to your annuity while balancing immediate expenses, or are you able to make a single, lump-sum contribution?
• Tax implications and estate planning considerations: If you decide to withdraw money from your annuity before the age of 59½, you may be subject to a 10% early withdrawal penalty tax. Otherwise, taxes are deferred on annuities until the money is withdrawn.² At Amica, you’re able to withdraw up to 10% of your account without penalty after the first year.
  
  The terms of your retirement annuity may depend on your estate. If you have a spouse, you may want to name them as a beneficiary. The death benefits associated with your annuity may allow for the payments to continue to your beneficiary after your death.² It’s best to discuss any changes to your estate with a financial professional.
• Costs and fees associated with annuities: There are fees associated with annuities (administration fees, mortality expenses, surrender charges, riders, etc.). These fees can also vary depending on the type and size of your annuity or the provider. At Amica, our annuities only have surrender charges.⁷
• Reputation and financial strength of issuing company: Do your research before you choose your issuing company. The financial health of the provider you choose can affect the interest rates you’re offered. If you choose an insurance company, be aware that they may use a broker for your annuity. Make sure that you’re aware of all entities involved in the purchase of your annuity.³