Annuities are agreements signed between an individual and an insurance company that are put into place to achieve financial goals for retirement. Under an annuity, the contract-holder makes a one-time payment or series of payments in exchange for the insurer’s promise to make recurring payments to the retiree when he sees fit.
Adding to their appeal, annuities allow for tax-deferred growth of earnings and sometimes encompass a death benefit that will pay an allotted amount to a beneficiary should the need arise. If, however, withdrawals are made from an annuity, gains are taxed at ordinary income rates rather than capital gains rates. Significant penalties may arise, too, if money is taken from an annuity prematurely – usually in the form of surrender charges to the insurance company in addition to tax penalties.
Three types of annuities exist: fixed, indexed, and variable, which are outlined below.
Fixed Annuity: In this type, the insurance company pays a predetermined rate of interest – for either a definite or indefinite amount of time – as the annuity account expands. Like the interest rate, the amount per dollar paid by the insurance company in the account is also specified.
Indexed Annuity: Insurance companies, in this variety, credit the annuity account with a return based on changes in index, while ensuring that the agreed upon value will not drop below a pre-set minimum, even if index performance changes.
Variable Annuity: This kind of annuity allows the user to decide on purchase payments from a breadth of various investment options, usually mutual funds. Depending on the performance of payments, the amount of periodic payments receives changes according to the performance of investment options selected.
In order to help you determine which type of annuity makes the most sense for your investment purposes, it’s a good idea to consult with a financial advisor who can help you to develop a plan based off of your current financial situation and goals for the future.
For more information about Annuities and our services or for professional financial advice, consult the financial advisors at Safe Retirement Solutions by calling 877-268-4086 or visit our website today!