It’s easy to define an annuity! But it is important to fully understand all your options when it comes to investing in you or your loved one’s long term care. It is important to remember that this is just one of the many options you have when planning out how to afford elderly care services.
Annuities function as a contract between an insurance company and you as the purchaser. Whether you have a pension or another “nest egg” of money intended for retirement, you can use that to plan for a guaranteed income that pays out until your death. Annuities are a combination insurance-investment product, and they work like a contract. You invest in an annuity up front, with a contract that specifies a future date when you’ll receive either a lump-sum payment or a series of payments that continue for the rest of your life. Annuities are particularly useful if you have savings but are worried about making it last for as long as you need them to pay for your independent living. The security of guaranteed payments makes annuities popular choices for independent living. Some people also like annuities because they aren’t considered assets by Medicaid when you apply for government assistance. Medicaid counts the income from the annuity, but not the original investment.
|
Type of Annuity |
Pros |
Cons |
|
Fixed |
Minimum fixed rate of return |
Loss of purchasing power due to inflation |
|
Variable |
Offers greater growth in the value and inflation protection |
Rate of growth subject to market – promises no rate of return |
|
Combination |
Provides the security of guaranteed payments with the potential for growth and inflation protection |
The fixed payments are subject to purchasing power risk and the variable payments are subject to market risk |
Fixed Annuities
Fixed Annuities guarantee a minimum fixed rate of return. Your insurance company would absorb that risk. So, in the case of the annuity not earning the promised rate of return, then the insurance company would make up the difference. The downside to fixed annuities is that due to the fixed rate of return, the owner has a loss of buying power (inflation).
Variable Annuities
Variable annuities are tax-deferred investments purchased within an insurance contract. This a high risk – high reward circumstance because the variable annuity has an opportunity for impressive growth. Although, the risk is that there is no guaranteed return, and the rate of growth is subject to the market of the chosen investment portfolio.
Combination Annuities
This annuity is a happy medium between a fixed and variable annuity. Combination annuities allow the owner, using one contract, to distribute deposits of premium payments between the insurer’s fixed and separate accounts. The owner of the annuity is able to typically make annually or quarterly changes in the allocations at certain levels.
If you are overwhelmed by the process of finding affordable in-home care - contact us at Senior Helpers today.
Senior Helpers – Sacramento/Placer provides compassionate caregivers to help our local seniors with day-to-day tasks such as housekeeping, meal prep/planning, and transportation as well as providing assistance with bathing, dressing, medication reminders and more. Our mission is to improve the life of seniors and help relieve the burden on their families. If your loved one lives in Sacramento or the surrounding areas (Roseville/Rocklin, Folsom, Rancho Cordova, Elk Grove) and you would like more information, please call us at 916-671-5777 or click the Contact Us link at the top of this page.