Commonly used to fund retirement, annuities are especially popular with retirees and those approaching retirement age. Whether you're already retired or are thinking about retiring, you might consider an annuity to help support the next part of life's journey.
Purchases of the financial contracts between individuals and insurance companies have skyrocketed lately, as buyers have jumped on rising payout rates spurred by multiple interest rate hikes by the Federal Reserve.
You’ve likely heard of annuities. But if you’re like a lot of people, you aren’t sure exactly what they are and how they work.
In simple terms, an annuity is an investment tool that can provide you with secure retirement savings or a source of funding for unexpected expenses. Annuities are typically purchased from an insurance company such as Erie Family Life, through a single, lump-sum payment or through a series of scheduled deposits.
When you purchase a fixed rate annuity, the insurance company invests that money in ways that earn interest, until you select a date when the insurance company starts making payments back to you. You can start receiving money from your annuity immediately or you can sock it away on a tax-deferred basis for decades before you start getting the benefits. Those payments typically continue until you or your spouse pass away.
According to insurance trade group LIMRA, consumers set a record in 2022 by investing $310.6 billion in annuities, 17% more than the previous record set in 2008.
Annuities' recent popularity is due in large part to their stability in the face of high interest rates. These interest rate hikes—which are expected to continue throughout 2023—typically mean higher yields on newly issued bonds, which in turn allows insurers to offer higher-credited rates for new deposits.
Sound confusing? Just know this: while higher interest rates can mean things like higher mortgage rates, a decline in stock values and slower economic growth, they can also be a sign of positive news for annuity buyers.
Want to see the interest rates Erie Family Life is offering? Check out this chart to get an idea.
There are multiple types of annuities that can provide secure retirement savings. But depending on your needs, some annuities might work better than others.
These annuities allow the purchaser the ability to receive payments immediately upon deposit. Since payouts can be accessed so quickly, these are a popular choice for soon-to-be retirees.
Because you purchase these annuities with a single payment, they're often referred to as a Single Premium Immediate Annuity (SPIA). Income options can be set up for a specific period of years or over the course of your lifetime.
This type has an accumulation phase, during which time the annuity's cash value is building through investments. Payments will then begin sometime in the future. These plans are great for people who want to see their money grow and don't mind waiting a few years.
Deferred annuities can also be purchased with a single lump sum through what is called a Single Premium Deferred Annuity (SPDA). Erie Family Life offers you the choice of 3-, 5- or 7-year guaranteed periods. A guaranteed period is the length of the annuity plan selected, during which time your rate doesn’t change.
Another type of deferred plan, the Flexible Premium Deferred Annuity (FPDA), offers you the ability to contribute through scheduled deposits.
Many insurance companies offer annuities, but by choosing Erie Family Life, you can craft a plan to meet your unique needs.
Fixed-rate annuities offer a guaranteed interest rate when you purchase it. This feature makes it an attractive option during times of market volatility and is undoubtedly a big reason why purchases of fixed-rate annuities soared in 2022, reaching $112 billion in sales, more than double the amount in 2021, according to the Life Insurance Marketing and Research Association (LIMRA).
They're also simple to understand: you pay a lump sum and your earnings grow tax deferred until you are ready to use them. You can choose whether you want your retirement income distributed over a certain number of years, over your lifetime or receive interest-only payments.
Annuities from Erie Family Life also offer benefits such as:
To learn more about annuities, contact an ERIE agent. They can review your situation and determine the best options to help you get the most out of your retirement years.
This web page is not intended as estate planning or tax advice. Please consult a qualified professional advisor.
ERIE® life insurance products and services are provided by Erie Family Life Insurance Company, a member of Erie Insurance Group, and are not available in New York. See individual policies for specific coverage details. Certain terms and limitations may apply. Refer to our disclaimer for additional information.ERIE® insurance products and services are provided by one or more of the following insurers: Erie Insurance Exchange, Erie Insurance Company, Erie Insurance Property & Casualty Company, Flagship City Insurance Company and Erie Family Life Insurance Company (home offices: Erie, Pennsylvania) or Erie Insurance Company of New York (home office: Rochester, New York). The companies within the Erie Insurance Group are not licensed to operate in all states. Refer to the company licensure and states of operation information.
The insurance products and rates, if applicable, described in this blog are in effect as of the article’s publish date and may be changed at any time.
Insurance products are subject to terms, conditions and exclusions not described in this blog. The policy contains the specific details of the coverages, terms, conditions and exclusions.
The insurance products and services described in this blog are not offered in all states. ERIE life insurance and annuity products are not available in New York. ERIE Medicare supplement products are not available in the District of Columbia or New York. ERIE long term care products are not available in the District of Columbia and New York.
Eligibility will be determined at the time of application based upon applicable underwriting guidelines and rules in effect at that time.
Your ERIE agent can offer you practical guidance and answer questions you may have before you buy.
