If you retire at age 65, how will you fund the next stage of your life? Annuities offer a flexible way to fund lengthy retirements.
For Long-Term Goals
Issued by a life insurance company, an annuity contract allows you to accumulate money for long-term goals. Unlike IRAs and employer-sponsored retirement plans, there are no limits on the amount you can contribute to an annuity. Amounts above a certain threshold will require insurance company approval, however.
It can be an excellent supplemental retirement savings vehicle and offers a range of other benefits, including:
Tax deferral. Instead of paying taxes on your earnings each year, they grow tax deferred until withdrawal. A word of warning: Ordinary income taxes on accrued earnings are due upon withdrawal. If you make withdrawals before age 59.5, you may also incur a 10 percent federal early withdrawal penalty. Many annuities also charge surrender fees for withdrawals during the early years of the contract.
Choice of accumulation alternatives. You can choose from two basic types of annuities: fixed and variable. The main advantages of a fixed annuity are the protection of principal and security against market fluctuations. You generally receive a guaranteed minimum rate of return for a specific period of time-guarantees are based on the claims-paying ability of the issuing company. With a variable annuity, you can seek potential opportunities in the investment markets and obtain professional money management. You choose from a range of portfolios designed specifically for annuities; typically, these portfolios are comprised of stocks, bonds, or money market securities. Your returns are based on the performance of the underlying portfolios.
Flexible payout options. When you're ready to withdraw money, select the payout option that best suits your situation and needs. You may choose a single lump sum, periodic payments for a length of time, or payments guaranteed to last for your lifetime. IBI