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An annuity is a contract between you and
an insurance company. It provides unique retirement planning
benefits. Annuities are purchased to build a nest egg for
retirement at a faster rate than traditional alternatives. Fixed
annuities are GUARANTEED investments, which means your principle
investment is NEVER at risk.
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There are three main advantages to
annuities. First, annuities grow tax deferred, which means you do
not pay on the interest every year like CD's. The interest
continues to compound to earn you more money. Second, annuities
may be turned into a lifetime income stream. The annuity can be
"annuitized" providing annual or even monthly payouts for periods
of time. And lastly, annuities bypass probate. The money goes
directly to your heirs similar to a life insurance policy.
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CD's are good assets to put into
annuities. Like CD's annuities give you guaranteed return for a
certain period of years, often longer than a CD. However,
annuities grow tax deferred unlike CD's. Also, mutual funds that
are performing poorly in the market are good assets to move into a
fixed annuity; protecting your money for your future retirement
years.
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| Below is a table comparing a tax deferred
annuity with a CD at a tax rate of 27.5% to be paid annually. |
| Tax Deferred
Annuity |
CD (Tax Rate
of 27.5%) |
|
Year |
Balance |
Interest
Earned |
Value |
Balance |
Interest
Earned |
Value |
Difference |
|
1 |
$100,000 |
$6,000 |
$106,000 |
$100,000 |
$4,360 |
$104,360 |
$1,640 |
|
2 |
$106,000 |
$6,360 |
$112,360 |
$104,360 |
$4,530 |
$108,890 |
$3,470 |
|
3 |
$112,360 |
$6,740 |
$119,100 |
$108,890 |
$4,740 |
$113,630 |
$5,470 |
|
5 |
$126,250 |
$7,580 |
$133,830 |
$118,570 |
$5,160 |
$123,730 |
$10,100 |
|
10 |
$170,000 |
$10,140 |
$180,140 |
$146,700 |
$6,380 |
$153,080 |
$27,060 |
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Terms of contracts vary from 1 year to 20
years. Most annuities have penalty free withdrawal provisions and
some have as much as 60% loan provisions for added liquidity.
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Yes, there are penalties for early
withdrawals, however, most annuity contracts have penalty free
withdrawals available after year 2 of anywhere from 5-10%. But
remember, if you invest only the money you do not need for your
current bills, you stand to earn a lot more than other forms of
investments.
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Your annuity value will not be lost when
you pass on. If you have not started to receive a stream of
income from the annuity, the entire value passes on to your
beneficiary. If you have started to take income payments, then
the payments will continue to your beneficiary for the number of
years you selected when you buy the contract.
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The best way to be certain is to visit with
an experienced professional in the field of fixed investments
including annuities.
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Yes. The best way to get more answers is
to talk to a professional advisor. Click
here to e-mail me for
more information or to contact you to discuss some options.
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Portions of this
information have been taken from
"Annuities and You" pamphlet from
M&O Marketing.
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