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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 |
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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. Feel free to
e-mail 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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The information
provided is intended for informational purposes only and
does not necessarily reflect your particular situation.
This website does not nor does it intend to dispense legal,
tax or financial advice.
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