Successful retirement planning goes beyond just saving a set amount of money. It also includes creating guarantees that you won’t outlive your money. A retirement annuity can provide the income you need for however long you need it, or as long as you live.
In this article, we take a close look at Retirement Annuities and how these products can help you live a successful retirement.
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What is a Retirement Annuity?
A retirement annuity is an insurance product that provides income guarantees throughout retirement. Income payments from a retirement annuity typically last the rest of your life. In other words, you’ll never outlive your money.
Here’s how it works: You invest in an annuity, it grows at either a fixed or variable interest rate, and then you receive back scheduled income payments throughout retirement.
The right Annuity can and will help you live your retirement years with confidence.
Tax Advantages of Retirement Annuities
Qualified retirement annuities have unique tax advantages to help you grow your income throughout retirement.
If your Annuity is a part of a qualified retirement plan, you can purchase the Annuity with pre-taxed dollars. This tax-benefit allows your investment to grow and compound at a faster rate, which means more income for you throughout retirement.
Non-qualified annuities are not part of a retirement plan and therefore do not have the tax incentive. You purchase a non-qualified annuity with post taxed dollars, which slows down the growth of your investment.
Choose your income payments and choose your taxes:
The funds within a retirement annuity grow tax-deferred. This means you’re in control over your taxes based on the income payments you withdraw.
For example, if you were to take a lump sum payout upon ‘annuitization,’ you would pay taxes on the entire annuity funds. The longer you delay and extend your annuity income, the lower you’ll pay in taxes.
Our knowledgable agents will help you strategically design your Annuity to reduce your tax bill and keep more of your money throughout retirement.
You can learn more about Qualified vs. Non-Qualified Annuities here.
Types of Retirement Annuities
There are several types of annuities.
Immediate annuities form through a single, one-time premium payment, and all the annuity benefits become immediately available. You can begin taking income payments right away or postpone them into the future.
Deferred annuities form over a series of premium payments, typically over several years. During the accumulation phase, you do no receive payout distributions. Only once the Annuity is fully funded, do the benefits become available and you can begin taking income payments.
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Choose Your Interest Rate
Another way in which annuities for retirement further differentiate is by interest rates. You have the option of choosing your interest rate at which your money grows.
Fixed annuities provide a guaranteed ‘fixed’ rate of return on your investment. Meaning, you’ll know how much your investment will grow before you make the annuity purchase.
These are considered low-risk investment products due to the guarantees provided in the contract. Fixed-rate retirement annuities are suited for individuals who want a conservative investment that avoids market exposure.
Variable annuities provide a variable rate of return dependent on stock market fluctuations. These types of annuities offer the opportunity for higher yields of your investment. However, they do carry the risk of loss of principle. Variable annuities are for those seeking to grow their retirement with moderate guarantees and risk.
Retirement Annuities vs. Other Investments
As you near retirement, it’s likely that your investments will become more conservative due to less time to rebound from any financial loss. An annuity can protect and grow your money without exposure or financial risk.
Other low-risk investment options such as Bonds and CDs, offer no real growth potential. Annuities are unique in offering real growth potential and protection against financial loss.
Exploring Your Annuity Options
Navigating the complex world of annuities can quickly become overwhelming if you were going about it alone. The good news is, you don’t have to!
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