The Role Of Annuities In Retirement Planning
Having financial independence, more spendable income, and security as one ages are some of the financial goals people have for retirement. An annuity can play an invaluable role in fulfilling these goals.
What is an annuitiy?
An annuity is a contract with an insurance company that allows the annuity holder to save for retirement. It is a way to guarantee income payment for life; therefore an annuity can be a valuable part of any financial plan.
How does an annuity compare to other financial planning products?
An annuity is unique in that it has a combination of benefits:
- Potential guaranteed income
- Tax deferred accumulation
- Probate advantages
- Flexibility of selecting the type of interest rates guarantee or the index of investment portfolio.
Why buy an annuity?
- Tax Advantages: during the accumulation phase, interest earned on annuities is not taxable until funds are withdrawn. During the payout (annuitization phase), tax liability is spread out over the duration of the payout period.
- Income for Life: An annuity is the only financial product that can provide income to people for as long as they live – guaranteed
No Limit on Contributions: Rules limiting contribution amounts to IRAs, 401K and other qualified plans do not apply to an annuity
- Safety of Premium: Fixed annuities and indexed annuities contain provisions that allow the owner to help minimize the risk.
What are the various types and benefits of annuities?
- Fixed deferred annuity: a retirement savings plan for people
- who are averse to risk
- contributing the maximum to their employer-sponsored qualified plan
- who feel they are “behind" in their retirement savings
- who are seeking a tax-deferred product
- who desire on-going retirement income
- Immediate annuity: a retirement plan for people
- who are seeking to start receiving income payment within the next 12 months
- who are concerned about outliving his/her money
- can be purchased with pre-tax or after-tax dollars
- can be purchased with transferred funds from an IRA, Roth IRA, 401(k), 403(b), life insurance policy
How does an annuity compare with other savings instruments?
COMPARISON OF ANNUITIES TO OTHER SAVING VEHICLES
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