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A fixed annuity is a financial contract with
an insurance company whose tax-deferred growth is designed to be a source of
retirement income. Annuities come in many different types: Single Payment vs. Flexible Payment; Immediate vs. Deferred;
Bonus
Annuities; Multi-Year Rate Guarantees; Lifetime Income vs. Fixed
Period; Lifetime Income with Fixed Period Guarantee; Joint
Annuities; and Equity Indexed Annuities. Many of these types can be
mixed and matched. An annuity can even be structured to help pay the
premium on a long-term care insurance policy.
An Income You Cannot Outlive
Annuities offer the opportunity to both accumulate retirement savings and to
ensure that those savings can't be exhausted in retirement, no matter how
long that may be. Earnings grow tax-deferred during the accumulation phase
of an annuity and, if a lifetime payout plan is chosen, payments continue
for life. An annuity is a personal pension plan that can be used by anyone
to supplement other public and employer-paid retirement income. Longevity
risk is the biggest and least recognized financial challenge facing people
today, and using annuities, as part of your financial plan, can be an
important part of assuring adequate assets in retirement.
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Power of Tax-Deferred Growth
Earnings in an annuity, unlike most financial products, are not currently
taxable as income. Earnings are tax-deferred until you actually withdraw
your money. This means the money you would have used to pay taxes can remain
in the annuity earning more interest.
Tax advantages can occur at payout, too. Although income from qualified
plans (such as private pension, profit sharing, IRA or similar plans) is
usually fully taxable when received, non-qualified annuities use an IRS
exclusion ratio that determines the taxable and nontaxable portions of the
income payments. Essentially, you only pay taxes on the portion of payout
that represents income earned on the annuity. That's because contributions
you made to the annuity have already been taxed when they were earned.
Realizing
Your Goals With Immediate Annuities
People use immediate annuities in order to convert some of their
retirement assets into a stream of monthly payments that will continue as
long as they live. A guaranteed monthly check can mean security.
As some governmental and other organizations struggle to figure out how they
will ever meet their growing and unfunded pension liabilities, its
comforting to know that you have prefunded at least part of your own pension
yourself by purchasing an immediate annuity.
Equity Indexed Annuities
An equity-indexed annuity is an annuity that earns interest that is linked
to a stock market index. An equity-indexed annuity is different from other
fixed annuities because of the way it credits interest to your annuity's
value. Traditional fixed annuities credit interest calculated at a rate set
in the contract. Equity-indexed annuities credit interest using a formula
based on changes in the stock market index to which the annuity is linked.
How much interest you get and when you get it depends on the features of
your particular annuity. This feature can give you the opportunity to
participate in the growth of the stock market without any stock market risk
to your principle
Why should
I consider purchasing an annuity?
You want to avoid
paying taxes on money until you are ready to spend it.
You want to have an
income that you cannot outlive.
You want a
guaranteed interest rate.
You want to participate in market growth without
risking your principal.
You want income and
growth to be guaranteed.
You need to
introduce more stability and balance into your asset allocation or
retirement plan.
You want to avoid
probate by having your money go directly to your chosen beneficiaries.
You want a
guaranteed source of cash flow to fund a Long-Term Care insurance
policy.
Can I put my
IRA or 403b money in an annuity?
Yes, you can put your IRA or 403b money into an annuity.
In fact, IRA and 403b annuities are very popular vehicles
for both the accumulation of retirement savings, and the
distribution of retirement assets.
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