An annuity is essentially a contract with an insurance company which based on many factors allows you to access your money over time while guarding against the depletion of your money. It may be a choice for people who are afraid of outliving their assets or who do not have ample funds to carry them through retirement.
Before You Buy an Annuity
Ask about a company’s history and although past performance is no guarantee of future results, knowing about an annuities earnings record can help you assess how well it may fit into your retirement plan. When evaluating, be aware that returns may have been achieved during an environment of relatively high interest rates. Current and future conditions may differ significantly. A portion of each annuity payment you receive from your non-qualified immediate annuity is considered by the IRS to be a partial return of principal and is therefore not taxable. Once the full amount of your principal has been returned, subsequent payments are fully taxable.
Ratings
It is important to know an insurer's level of financial strength because the assets of the insurance company back the value of your annuity. Some of the most respected industry ratings agencies are A.M. Best, Fitch, Moody's Investors Service, Inc., and Standard & Poor's.
Interest crediting history
Competitive interest rates should move in response to the market — be particularly wary of artificially high rates used as marketing gimmicks to attract new customers at the expense of existing ones.
Safety and Guarantees
For reliable growth, all fixed annuities offer a minimum interest rate guarantee. A fixed annuity can provide much greater security than many non-guaranteed investments because the assets of the issuing insurance company back the value of your annuity. Only an annuity can guarantee income you can never outlive, and annuities are available only through life insurance companies.
Death Benefit
Should you pass away before taking income, a death benefit equal to the full accumulation value of your annuity, less any withdrawals made prior to death, is payable to your beneficiary. Because the payment is to the beneficiary, it avoids the costs, delays and publicity of probate. Additionally, no withdrawal charges will apply.
If you pass away after income payments have started, the provisions of the annuity contract and income option selected, if any, will determine the death benefit.
Competitive Current Interest
Fixed annuity interest rates can be higher than those of other fixed-interest, long-term savings vehicles. Moreover, since annuity interest not withdrawn is not subject to current taxation, the effective yield may be even more favorable. But, the current interest rate is not the most important consideration in selecting an annuity. Because an annuity is a long-term financial instrument, the initial interest rate is not nearly as important as the long-term rate of return. Of course, that's not easy to predict, as the rate will fluctuate overtime with changes in economic conditions. In order to anticipate what might happen in the future, it's worth looking at what has happened in the past. In other words, how a company has treated its contract holders in the past may be a good indication of how it may treat contract holders in the future. Some companies offer a very attractive interest rate to entice new contract holders, but they may not offer that rate for very long, or they may credit a lower rate to subsequent contributions than they are crediting on premiums paid to new annuities.
Other Things to Consider
Although annuities should be viewed as long-term financial instruments, the length of the withdrawal charge period, which may be several years, may be important for you. Annuity Companies will waive the surrender charge in the event of premature death or annuitization on many of their fixed annuity products, but other withdrawals before the end of the withdrawal charge period may incur a withdrawal charge.
Variable Universal Life
Millions of Americans have discovered how a variable annuity can help provide for a secure retirement. Variable annuities offer a number of distinct benefits:
- Tax-deferred growth potential
- Professional money management
- Portfolio diversification
- Lifetime income options
- Beneficiary protection
In addition to the standard benefits listed above, variable annuities from can offer modular design that allows you to choose the features and benefits that are important to you. You may choose from optional benefits (for an additional charge) such as:
- An instant addition to your premium
- Additional access to your money
- Enhanced protection for your family
- Important safeguards for your principal and retirement income
Many variable annuities offer a wide variety of investment options in almost every asset class from some of the most recognized names in the industry.
Variable annuities involve investment risks, may lose value and should be viewed as long-term investment vehicles designed for retirement. Earnings are taxable as ordinary income when distributed and, if withdrawn before age 59½, may be subject to a 10% federal tax penalty. Withdrawals may be subject to withdrawal charges, recapture charges and excess interest adjustments (where applicable).
Fixed Annuities
A fixed annuity is a contract issued by an insurance company that guarantees fixed payments for a specific time period. Income payments can begin immediately with an immediate annuity or they can be deferred to begin at a later date with a deferred annuity.
Contact us to learn if an annuity is right for you.
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