Brian Gruss Licensed Insurance Planner

Immediate Annuities Can Help You Secure Your Retirement Income

As you approach retirement, it’s natural to worry about your retirement portfolio. It is also natural to become frightened during a recession, such as the ongoing downturn that started in 2008. During tough times, your entire strategy can suddenly become worthless. The supply of cash that you have carefully built up over your working life is gone, vanished like so much dust. This is downright scary. What shall you do? Many individuals in this same situation end up taking part-time jobs in order to support themselves.

An immediate annuity can help you regain liquidity. Buying an annuity is like buying a monthly pension check. It is an insurance policy that pays you a lifelong income stream in exchange for a lump sum. There is no age limit for purchasing an immediate annuity; you can buy one at 80 or 90 if you want to. When the payments start is entirely up to you. Once you decide on a date, the payments are orderly and on time, appearing on that date every month for the rest of your life.

Consider several advantages to immediate annuities:

• Your insurance agent will be able to tell you what the monthly payment amount is based on your lump sum.
• The annuity is backed by the financial security and assets of an insurance company, so do your research before buying.
• This product affords you, the beneficiary immediate peace of mind since the payments start when you choose. You can rest completely assured of a secure, stable long-term monthly income. You can even add an inflation rider to the policy so that your income will not get eaten by inflationary pressures.
• Since immediate annuities are different from stocks and bonds, there is no worry about volatility or market fluctuations. The value of the annuity remains constant. You have the protection of knowing that every month, the money will be deposited into your bank account.
• There are no fees of any kind to be paid – no management fees, no setup or administrative fees, and no annual fees.
• Favorable tax treatment – Only a small portion of income generated from an immediate annuity funded with after-tax dollars would be taxable.  This is because part of every payment is considered a return of principal.

Is an immediate annuity right for you? That depends on your unique needs of course. For those seeking to secure a future income stream, immediate annuities are a perfect way of achieving a guaranteed monthly income which will not fluctuate due to external forces. The peace of mind possible with having an income stream one cannot outlive should not be ignored.

Liquidated earnings are subject to ordinary income tax, may be subject to surrender charges and, if taken prior to age 59 1⁄2, may be subject to a 10% federal income tax penalty.

Guarantees and payment of lifetime income are contingent on the claims paying ability of the issuing insurance company.

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Retirement Planning: The Advantages of Fixed Annuities

A fixed annuity is a contractual obligation rendered by an insurance company with a pledge to disburse income to a recipient based on a fixed return on investment. Therefore, they are ways for the holders of such instruments to be guaranteed future dividends or a source of income. That’s why, when selecting from the variety of annuities available, annuities are a logical choice to make for retirement planning.

Fixed annuities have a rate of return or ROI that is equal to the rate of return of the market. Therefore, they offer a lower risk to the consumer and, as a result, more financial security. Comparatively, variable annuities incur more risk for the consumer. Variable annuities typically glean a higher return rate although the holder of these types of instruments is also more vulnerable financially. Therefore a greater risk is supplied. Subject to market rates, you can possibly lose a portion of what you invest.

On the other hand, fixed annuities offer the convenience and comfort associated with a lower-risk instrument. The holder of the annuity simply opts for a lower rate of return. You might say a fixed annuity can be likened to a CD, except you realize a far greater return on your investment because your money is committed for a far longer period of time.

Investing in fixed annuities is financially sound from a tax standpoint as all deposited funds in such annuities are tax-deferred until which time you decide to receive income from the annuity. At that time, taxes are taken out only on the income growth, thereby making these types of annuities ideal for retirement planning.

Because of the tax advantage, these products are used primarily for long-term planning purposes. In other words, income cannot be collected from the annuity prematurely, which means before the age of 59 ½, as the holder can be assessed taxes, fees, and penalties. Also, surrender charges are imposed if you choose to cash in your annuity before the specified time. The charges can be excessive so one should consider them for long-term investment purposes only.

If you are truly serious about planning for retirement and are someone who needs a financial product that provides a minimal amount of risk, a fixed annuity may well be worth your consideration.

Take time out to contemplate all the pros and cons of owning such an instrument. For retirement planning purposes though, fixed annuities are ideal because, as previously stated, they offer a tax advantage for the consumer.

Additionally, the opportunity to invest in other enterprises is increased because of the annuity’s tax benefits. You can become prosperous with your short-term investments while investing in a solid financial product in order to secure your future income needs.

In summation, fixed annuities provide the kind of financial security you need now to realize monetary growth in other areas, and the assurance that you will be provided an adequate future return on your investment.

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