Annuities

Help Give Your Retirement Income a Boost With Our Annuities

The way you live today has a considerable impact on how you live tomorrow. Suppose you want a relaxing and financially secure retirement; 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 pay the annuitant over a specified period or for life.

The key word is contract. Because an annuity is a contract, some uncertainties with other investments (mutual funds or stocks) are absent. 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. I highly recommend the advice and counsel of appropriate tax, legal, and other professionals.

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 ensure a person does not outlive their income. Please contact us to learn 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, 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 are used to calculate the benefits and who will receive the payments.

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

Phases of an Annuity

An annuity has two distinct phases: the accumulation phase and the payout phase.

Accumulation Phase

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

You can 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, taxes may have to be paid on some or all of the money you withdraw. It is essential to consult with a tax professional before you make withdrawals.

Payout Phase

This is when the annuity starts to pay money out to the annuitant. There are several payout options, and please understand the differences when choosing an option to ensure it meets your needs.

Once you choose a payout option and start receiving payments, you cannot change the method. Working with a knowledgeable professional like Matthew Carter must ensure 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 annuity’s value passes directly to a named beneficiary, avoiding 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 the state insurance departments closely regulate. Minimum interest rates are built into fixed annuities.
4. Tax Deferral – The primary advantage is accumulating 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 withdrawals or receiving income. Your money grows faster because you earn interest on money that would otherwise be paid in taxes.
5. Liquidity – Annuities have several liquidity advantages if you need money. Most contracts allow for penalty-free withdraws after the 1st year. Withdraws before 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.