South Carolina residents utilize a variety of different investment vehicles and financial products to save for retirement. Annuities are another way to supplement your retirement income and plan for your future. 

What Is an Annuity?

An annuity is a financial tool. Unlike many retirement tools, however, an annuity is a contract between you and an insurance company rather than with a bank or an investment company.

Annuities can also be created to turn a substantial lump sum into steady cash flow, such as for people who win the lottery or for those who receive a large settlement from a lawsuit.

An annuity contract requires the insurer to make payments to you either immediately or in the future in return for a premium (or premiums) that you have paid. The insurance company typically invests your premiums in mutual funds, allowing your money to grow during the payment period. Many consumers buy annuities so that they will have a regular income after they retire.

People who purchase an annuity usually make either a single payment or a series of payments. Your payout may be either in a lump sum or in a series of payments over time.

There are several types of annuities, all of which carry varying levels of risk and guarantees. According to the National Association of Insurance Commissioners, the different types of annuities include: 

• Single premium annuity: You make one single payment to the insurance company. 
• Multiple premium annuity: You make multiple payments to the insurance company.
• Immediate annuity: You will begin to receive income payments no later than one year after you pay the premium.
• Deferred annuity: You receive income payments at the time of your choosing, after the initial savings phase. 
• Fixed annuity: The money that you pay in earns interest at a rate that is specified in your contract, less any applicable charges.  
• Variable annuity: The money you pay in is invested in stocks, bonds, or other investments in order to grow over time. You can choose the types of investments you want to make depending on the level of risk you want to take. 
• Equity-indexed annuity: This is a variation of a fixed annuity in which the interest rate is based on an outside index, such as a stock market index. The annuity pays a base return, but it may be higher if the index increases.

While immediate and deferred annuities are both tax-deferred, deferred annuities allow your money to grow tax-deferred for a longer period of time because you won’t pay the IRS until you receive the income from the annuity during retirement. 

How Do I Find an Annuity that Works for Me?

Insurance companies sell annuities, as do some banks, brokerage firms, and mutual fund companies. 

People buy annuities for various reasons. Be sure that the product you purchase is right for your goals. What’s more, annuities are quite complicated and finding the right annuity should involve help from a qualified advisor, as well as a lot of research and careful consideration. 

Here are a few tips on finding an annuity that works for you. 

• Shop around by comparing annuities offered by several companies. 
• Verify that the agent and company you choose are both licensed in South Carolina. 
• Be sure to understand all of the charges and penalties that you may incur under the annuity contract.
• Check whether the annuity contract allows you to change the amount of your premium payments, and ask what happens if you stop paying premiums altogether. 
• Make sure you fully understand any annuity that you are considering, and that you are comfortable with the company, insurance agent, and product. 
• Ask a lot of questions and make sure that you receive adequate answers. 
• Compare product summaries and benefits for similar annuities from several companies. Choose the one that best fits your needs at the most favorable premium rate. 
• Read and understand your annuity contract. Ask your agent questions about anything you don’t understand. 
• Periodically review your contract to make sure it continues to meet your needs. 

Do I Need an Annuity?

An annuity is a long-term investment and shouldn't be used to reach a short-term financial goal. Annuities are a way to supplement your income in retirement. They are a good option for some people because they can provide regular payments, tax benefits, and a potential death benefit.

But annuities certainly aren’t for everyone. If you know that you won’t run out of income in retirement, you likely don’t need an annuity. If you’re healthy and you want the security of a stream of income that you can't outlive, or you want to provide for your spouse or heirs, you may benefit from an annuity. 

What Are the Benefits of Annuities?

Annuities have several benefits for certain individuals. The benefits include:

• The regular payments from the insurance company provide supplemental income during your retirement. 
• The money that you contribute to your annuity is tax-deferred. That means you can contribute money before you pay taxes. 
• Fixed annuities usually include guarantees to prevent you from losing money.
• Variable annuities typically provide a death benefit, which is a payment that the insurance company will make to a beneficiary if you die.

It’s important to understand that annuities aren’t for everyone. If you’re uncomfortable with high fees and knowing that getting out of your contract may be impossible, then an annuity is probably not for you. 

Do I Need an Agent to Purchase an Annuity in South Carolina?

Annuities can be purchased in South Carolina through an insurance agent or a financial advisor. Buying an annuity is complicated and is definitely not something you should do on your own. You need to be sure that you understand exactly what you're getting, including all of the charges, fees, and conditions.

An independent insurance agent in South Carolina can help you shop around and compare information for similar products from several companies. Your agent can carefully review the contract with you and help you understand all of the specifics of your annuity. 

In South Carolina, consumers have a "free look" period after purchasing an annuity. This is a set number of days to review the annuity contract after your purchase. If you change your mind during the free look period, you can cancel for a full refund. 

The free-look period for annuities in South Carolina is: 

• 10 days for a new contract
• 20 days for a replacement contract
• 30 days if you’ve been solicited by direct response marketing rather than agent