Help Give Your Retirement Income a Boost With Our Annuities

The way you live today has considerable impact on how you live tomorrow. That means if you want a relaxing and financially secure retirement, you have to plan now. If you’re still young, you may be able to enjoy the benefits of compound interest.

An annuity is a long-term investment designed for retirement purposes. An annuity has an accumulation phase as well as a payout phase. When annuitized, it can guarantee a stream of income that may help you maintain a comfortable lifestyle for the rest of your life.

Annuities Explained

An annuity is an insurance contract where an insurance company promises to make payments to the annuitant over a specified period or for life.

The key word is contract. Because an annuity is a contract, some of the uncertainties that exist with other investments (mutual funds or stocks) are not present. Typically annuities are used as long-term investments.

Because of this and the complexity of many annuity contracts, we recommend that anyone considering the purchase of an annuity should carefully consider all aspects before entering into the contract. The advice and counsel of appropriate tax, legal and other professionals is highly recommended.

Life insurance protects you from dying too soon. Annuities can help protect you from living too long. One of the purposes of an annuity is to make sure a person does not outlive their income. Contact us to find out more about the types of annuities you can purchase.

The Participants in an Annuity

There are three participants in an annuity contract:

Owner – This is the purchaser of the annuity. He pays the premiums, has the right to surrender the annuity and is responsible for any taxes due upon surrender or payout and usually names the beneficiary.

Annuitant – This can be the same person as the owner but it doesn’t have to be. It is the person whose age and life expectancy is used to calculate the benefits and who will receive the payments.

Beneficiary – This person receives the death benefit upon the death of the owner or annuitant.

Phases of an Annuity

There are two distinct phases to an annuity: the accumulation phase and the payout phase.

Accumulation Phase

The first phase where all the premiums are paid into the annuity and the money grows tax-deferred. This period of time ranges from a couple to many years. Most annuities penalize you for a period of time if you withdraw the money.

Typically you are permitted to withdraw about 10% of the annuity value each year without paying a surrender charge. Even if you don’t have to pay the surrender charge, there may be taxes that have to be paid on some or all of the money you withdraw. It is important to consult with a tax professional before you make withdraws.

Payout Phase

This is when the annuity actually starts to pay money out to the annuitant. There are several payout options and you need to understand the differences when choosing an option to make sure it meets your needs.

Once a payout option is chosen and you start receiving payments, you cannot change the payout method. It is important to work with a knowledgeable professional, like Matthew Carter, to make sure you choose the right option.

Benefits of Annuities

  1. Guaranteed Lifetime Income – You can select a payment option that provides monthly payments for as long as you live.
  2. Avoid Probate – At death, the value of the annuity passes directly to a named beneficiary and avoids the delay, expense and publicity of probate.
  3. Stability – State insurance laws require that companies establish and maintain reserves equal to the cash surrender value of annuities at all times The annuity dollars are invested in long-term stable and diverse investments (excluding variable annuities) that are closely regulated by the state insurance departments. There are minimum interest rates built into fixed annuities.
  4. Tax Deferral – The primary advantage is the opportunity to accumulate a substantial sum by allowing the premium and interest to grow tax deferred. You pay no taxes on the annuity interest until you begin taking withdraws or receiving income. Your money grows faster because you earn interest on money that would otherwise be paid in taxes.
  5. Liquidity – If you need money for any reason, annuities have several liquidity advantages. Most contracts allow for penalty free withdraws after the 1st year. Withdraws prior to age 59 1/2 may have IRS penalties.
  6. Competitive Rates – Not only do fixed annuities offer competitive rates, but when the power of tax deferral is factored in, the annuity’s performance can be enhanced. You can even purchase some annuities with a bonus on first year contributions.

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Matthew Carter, Owner

Matthew Carter, Owner

Retirement Planning Services

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Serving Oldham County, Henry County, Trimble County, Carol County, Jefferson County, and all of Indiana.