Annuities 101

Something needs to be done in order to protect yourself in the future, financially. There are various ways for you to generate an income stream later in life. There may be a pension, 401(k) and Social Security, too. If you don’t have any of these or you want the income to be greater, annuities can be a great option.

Annuities is a form of insurance that entitles you as the investor to a series of annual or monthly sums. This can be done for the rest of your life, allowing you to have the money that you need when you need it.

There are two categories that annuities fall into. This includes deferred and income.

You can choose a deferred annuity as a way of boosting your retirement savings, especially if you have already maximized your allowable contributions to a 401(k) or IRA. There are no IRS contribution limits, allowing you to invest as much as you want towards retirement.

Variable and fixed annuities exist within this category, allowing for the possibility of investment growth or as a way of guaranteeing the rate of return for a specific number of years.

It is important to remember that annuities are not FDIC insured and withdrawals from an annuity prior to the age of 59 ½ may be subject to IRS penalties of 10%. The other category is that of income annuities. If you are close to retirement, or already in retirement, it allows you to be more aggressive than you could be with other investments inside of your portfolio. It offers guaranteed income for a set period of time or for life.

Within income annuities, you have immediate variable and immediate fixed opportunities. These are similar to those of the deferred ones, allowing you to pick and choose whether you want income that is based upon inflation or provides a guaranteed and predictable payment.

How you choose between deferred and income annuities are going to depend upon your stage of life. There are plenty of tax benefits, with the main one being that you don’t have to worry about IRS penalties as long as you don’t start getting the payments made to you until you are at least 59 ½ years of age.

You are never too young to start thinking about your financial future. Contact us today and lets start talking about annuities and deciding which one is going to work best for you and your financial goals for the future.