Annuities may seem like a new idea but they have been around since the time of Rome when they where used to create a lifetime income stream for citizens.
Today annuities offer two potentially valuable options.
- Tax deferral of interest earned – Tax on earnings in annuities is not paid until funds are removed from the annuity. Over time, tax deferral allows for a greater amount growth when compared to a similar interest bearing vehicle that is not taxed deferred. The end result is greater value.
- Guaranteed income - Income can change dramatically upon retirement. One of the biggest issues facing retirees today is the possibility of outliving ones assets. An annuity that is annuitized will guarantee an income for a set period of time – often a lifetime.
Annuities are typically classified as immediate or deferred.
An immediate annuity is designed to start generating income “immediately” or shortly after it has been funded.
Deferred annuities may involve a single or multiple payments. The opportunity to turn the annuity into an income stream occurs in the future and often involves reinvestment options. Deferred annuities are tax-deferred and receive special tax treatment to encourage people to save for retirement. Accumulations are not taxed for as long as they are left in the contract. If funds are withdrawn prior to age 59 ½ the government applies a 10% tax penalty to the withdrawn funds. In qualified annuities withdrawals must begin after age 70 ½.
There are three basic types of deferred annuities.
- Fixed Annuity – Money invested earns a fixed rate of interest that is guaranteed over the life of the annuity contract.
- Fixed-Indexed Annuity (FIA) – FIA’s offer you the safety of aFixed Annuity with the opportunity of greater performance than might be found in a fixed annuity product.
FIA’s typically consist of a fixed account that operates like a Fixed Annuity and 1 to 4 other accounts that allow you to capture additional interest based on the performance of a particular stock index, such as the Standard & Poor’s 500 Index. The key to these accounts is that when and Index performs well you receive a percentage of interest that is based on the performance of the Index used. If the index moves down, guarantees within the policy insure that you receive a minimum guaranteed rate.
The FIA concept can be very appealing because it allows you to receive top-end gains, while having the security of a minimum rate to protect them from losses. You can see more about how an FIA works by clicking here. How an FIA works.
- Variable Annuity – Money put into a variable annuity is invested in options known as sub-accounts. Many of these sub-accounts involve securities (e.g., stocks, bonds, etc.) where you could see growth as well as losses. The idea of a variable annuity is to give the investor greater control over how money is handled within the annuity. Variable annuities have a greater degree of risk compared to a Fixed or Fixed Indexed Annuity.
Call or e-mail for further information about Annuity opportunities that could work for you.
Because Annuities involve a wide range of financial instruments we want you to know that:
Judy Lococo and John E. Lococo are Registered Representatives and Advisory Affiliates with American Investors Company
Securities & Advisory Service offered through American Investors Company
Member Finra/SIPC, Registered Investment Advisor.
You can learn more about FINRA at www.FINRA.org
Nothing contained herein should be construed as an offer or solicitation to purchase any security. Such offer or solicitation to purchase can only be done by prospectus.