Asset Accumulation and Annuities
Because most people’s retirement income will come from their personal savings, it is important to plan out how you want to grow your assets. Annuities are a safe way to grow your savings on an income tax-deferred basis. Some of the benefits to annuities include tax advantages, potential for lifetime income, safety features, and payout flexibility.
An annuity is a contract between you and an insurance company that is designed to meet retirement and other long-range goals, under which you make a lump-sum payment or series of payments. In return, the insurer agrees to make periodic payments to you beginning immediately or at some future date.
Annuities typically offer tax-deferred growth of earnings and may include a death benefit that will pay your beneficiary a specified minimum amount, such as your total purchase payments. While tax is deferred on earnings growth, when withdrawals are taken from the annuity, gains are taxed at ordinary income rates, and not capital gains rates. If you withdraw your money early from an annuity, you may pay substantial surrender charges to the insurance company, as well as tax penalties.
There are generally three types of annuities — Fixed, Lifetime Income, and Hybrid Annuity
At the beginning of the contract, the owner of this type of annuity will pay one premium. They payment and interest that is earned will accumulate until the benefit pay outs begin on a tax-deferred basis.
The owner pays one premium when the contract begins. The benefit payout immediately starts after the premium is paid. Immediate annuities typically work best for older people who wish to start generating a guaranteed income out of their accumulated wealth right away.
These annuities are deferred (pay outs begin at a date specified in the future) and earn interest or offer benefits that respond to an interest rate or index. These values are not guaranteed and fluctuate with the market.