Annuities
An annuity is a contract between you and a life insurance company. Annuities can be very useful in retirement planning. Here are a few of those benefits:
Save tax-deferred
Annuities allow you to save on a tax-deferred basis without paying taxes on interest earnings until you begin to withdraw them. There are very few limits on the amount of money you can put into a non-qualified annuity, unlike a 401(k) or IRA.
Annuities also allow you to protect your principal and have guaranteed* earning minimums.
Retirement income
Annuity contracts contain lifetime income options. Most allow for systematic withdrawals that pay you monthly, quarterly, semiannually, or annually at a designated time*.
Provides benefits to your heirs
Some annuities offer a term-life insurance rider. If you pass away before you start receiving payments from the annuity, this rider* will pay a benefit to your heirs that may be used to help offset taxes.*
Why should I consider purchasing an annuity?
Even if you have carefully saved for retirement, you may need to protect yourself against outliving your assets. Consider the following:
Retirement plans limit 0contributions
Employer-sponsored plans, such as 401(k), 403(b), 457, or Keogh plans, are an important part of your retirement planning. However, more investment options may be available, and contributions to these plans can be limited.
Social Security and pensions may not be enough
Social Security and pension may provide less income than you will need to retire. It is estimated that the average Social Security check is only $1,067* per month. In addition, the value of a fixed pension is often eroded by inflation.
Inflation and taxes can eat away at savings
Inflation makes everything you purchase more expensive over time. Therefore, your earnings need to keep pace with inflation to maintain your standard of living. Many sources of income can be taxable, such as Social Security, IRA withdrawals and interest earned from savings accounts, and CDs. This can result in much less after-tax income than you may have planned for. Tax results and the appropriateness of any product for a specific taxpayer may vary depending on the facts and circumstances.
What are the different types of annuities?
There are many types of annuities available to suit a variety of needs. Your age and risk tolerance should be carefully considered in deciding what type of annuity to pursue.
When considering an annuity, you should decide when you would like to withdraw income from the annuity. If you choose an immediate annuity, you would receive the income right away, while a deferred annuity would enable you to receive income at a designated time in the future.
Immediate Annuity
You pay the insurer a lump sum of money and, in exchange, receive income over a set period of time or as long as you live. In most cases, you can start receiving payments immediately after you transfer funds into an immediate annuity.
Traditional Fixed Annuity
A fixed annuity is a savings vehicle that is offered by an insurance company that guarantees a stable rate of return over the life of the annuity.
Index Annuity
Index annuities provide returns based on the performance of an equity market index, such as the S&P 500. The principal invested is protected from losses, while the gains add to the annuity’s return. For some investors, index annuities can offer peace of mind in today’s volatile stock market environment. Index annuities offer some restrictions that can affect withdrawals.
While all the benefits of annuities are evident, they may also be subject to early surrender charges and may not be appropriate for those in need of greater liquidity. For those looking for long-term savings options, the benefits offered by an annuity may fit perfectly.
- *Any guarantees offered are back by the financial strength of the insurance company.
- *Annuities may be subject to various limitations, including surrender charges and tax penalties for withdrawal before age 59 ½.
- *Optional benefit riders are generally provided at additional cost to buyer.
Any comments regarding safe and secure products, and guaranteed income streams refer only to fixed insurance products. They do not refer, in any way to securities or investment advisory products. Fixed Insurance and Annuity product guarantees are subject to the claims‐paying ability of the issuing company and are not offered by BWA.
Index or fixed annuities are not designed for short term investments and may be subject to caps, restrictions, fees and surrender charges as described in the annuity contract. Guarantees are backed by the financial strength and claims paying ability of the issuer.