Annuity Learning Center
Life spans in the United States have
been increasing. It is now common for people who reach retirement age to live 20 years or more in retirement, most of those
years in good health. It’s good to live a long and full life, but you want to be sure that your income lasts as long
as you do, and its purchasing power is as strong as you are. How can you manage the risk of “outliving your assets”?
Annuities are a unique financial product that, along with Social Security, employer pensions, your 401(k) plan, IRA
and other assets, can enhance your retirement security.
are taxed year by year, but the earnings in annuities aren’t taxable until you withdraw money. This tax deferral is
also true of 401(k)s and IRAs; however, unlike these products, there are no limits on the amount you can put into an annuity.
Moreover, the minimum withdrawal requirements for annuities are much more liberal than they are for 401(k)s and IRAs.
A lifetime immediate annuity converts an investment into a stream of
income payments that last as long as you do. There is a common misconception about annuities that: if you start an immediate
lifetime annuity and die soon after that, the insurance company keeps all of your investment in the annuity. That can happen,
but it doesn’t have to. To prevent it, buy a “guaranteed period” with the immediate annuity. A guaranteed
period commits the insurance company to continue payments after you die to one or more beneficiaries you designate; the payments
continue to the end of the stated guaranteed period—usually 10 or 20 years (measured from when you started receiving
the annuity payments). Moreover, annuity benefits that pass to beneficiaries don’t go through probate and aren’t
governed by your will.
What is an Annuity?
An Annuity is a legal contract between you and an insurance company. You make a single
premium payment or periodic payments over a period of time.
The insurance company promises to return your principal
plus specified contracted yields paid in a lump sum, or over a specified period of time, or guarantee a lifetime income to
you that you can never outlive.
Two types of annuities are available: Immediate and Deferred
Immediate Annuity derives its name because it starts payments immediately, or within one year after purchase. Immediate Annuity
payments are guaranteed for a fixed period, for example, 10- or 20-years. Or, you can choose to take a lifetime income that
you can not outlive. Insurance companies also offer period certain payments that are guaranteed. In other words, if you were
to die prematurely, payments would be paid to your beneficiary for the balance of the period chosen. For instance, if you
set up an immediate annuity with a 10-year certain period, and were
to die a year later, then your beneficiary would continue to receive payments for the balance of ten years, or for nine more
If you are married, you can also take a joint period certain that is based on the lives of both you and
A Deferred Annuity, unlike an Immediate Annuity, starts making payments to you at a certain period in the future.
Deferred Annuities are designed for accumulation and are tax deferred during the accumulation period, until you start receiving
There two types of deferred annuities: Fixed and Equity Indexed Annuity.
You Buy an Annuity?
This depends on your individual needs now and at some point in the future.
As a CD holder,
if you continually roll over your CDs, you are subject to current income taxes. Plus, CDs are subject to the expensive and
time-consuming probate process.
CDs vs. Annuities
With an annuity, you can take advantage
of deferred growth. And like a CD, with a fixed CD-Type Annuity, you an choose annuity deferral
periods. Also, some annuities allow you to take a portion of your annuity as income during the deferral period. But unlike
CDs, an annuity can avoid probate taxes.
If you have a pension/401(k) plan, an annuity can offer a safe place to harbor your money, where it continues to grow
tax-deferred. Or, if you are ready for retirement, you may want to choose guaranteed income that you can not outlive.
Maybe you have an inheritance you want to invest, or money from the sale of a home or business. You might consider a Bonus
Annuity that could immediately increase your balance as much as 10%.
Perhaps you want to start accumulating money
for retirement. A Flexible Premium Deferred Annuity allows deposits of as little as $25 per month.
So whether you
have millions to invest or as little as $25 per month, there is an annuity option designed to fit your needs.
Which Annuity is Right for You?
If you are near retirement and/or wish to turn your 401(k), IRA, or sale of
a home into a secure, guaranteed income stream, an Immediate Annuity might be right
On the other hand, if you are still saving for retirement and want to grow your money with the power
of tax-deferred compound interest, consider the Deferred Annuities.
If you are a CD buyer, consider a CD-Type Annuity.
Annuities not only provide a higher return than CDs, but the interest earned grows tax-deferred and most CD-Type Annuities
have a surrender-free withdrawal provision, so unlike a CD, you can withdraw money without any interest penalties. With CD
rates at an all time low, and dropping, annuities offer a strong and safe alternative.
By combining different annuity
strategies, you can create customized solutions that meet your individual needs.
Let us help by providing you with
a no-obligation personalized annuity quote based on your needs