What is the average Return of an Annuity?
One of the most common questions asked by consumers is “what is the average return of an annuity?” According to Empower Brokerage’s annuity expert Derek Baltimore, there is no one true answer to this.
Everybody has different financial goals, which may yield different results when it comes to an annuity return. The different types of annuities vary by situation and person, the answer to the question can vary quite often. Annuities are essentially bond proxies, meaning they are expected to produce bond-like returns. Each annuity comes with a guaranteed contract amount that the client is provided by the company they are purchasing from. The yearly return of the annuity is slightly above 1 percent of the total amount. Before you purchase, make sure you know the difference between a fixed, indexed, and variable annuities. All have different yearly financial outcomes, and one may work better for you than it would the next person down.
Investors also have built-in principle protection with an annuity they purchase. For instance, buyers have the option to put additional funds into an index, such as the S&P 500. On the day the annuity is purchased, a snapshot will be taken of what the S&P is at on that particular day. One year later, if the S&P is up from where it was on the day of purchase, there will be a credit added to the account value of the annuity.
However, if the S&P stayed the same or lowered in value from the original date, the client would not lose any money, and would simply receive zero percent credit added to the account value. This is what really makes an annuity a valuable asset for any person to have when thinking about retirement. It provides a steady stream of income for life, with a minimal risk factor involved. While there are additional retirement vehicles such as a 401(k) or an IUL, Annuities offer that sense of security that other investment vehicles do not. For more information regarding annuities, please visit our Life & Financial YouTube page.
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