Why should anyone use an Annuity? To Fund retirement and safe saving tool and more!

What is an Annuity?

An annuity is an insurance-based contract between you, the owner, and the contract issuer.

This is basically how annuities work: You pay after-tax dollars to the issuer, the issuer invests the money for you, and any earnings accumulate tax deferred. At some point, the issuer pays out the principal and earnings to you or to your beneficiaries. Earnings are taxed as ordinary income when they’re distributed. Why consider buying an annuity?

Why Buy an Annuity?

To receive tax-deferred growth for savings and a dependable stream of income for life

To save for a specific purpose

To supplement other sources of retirement income

To maintain financial independence

Taxable vs. Tax-Deferred Growth

Here’s an illustration of the advantage of tax-deferred earnings growth over earnings growth that’s taxed every year. Let’s assume you make a lump-sum investment of $10,000 that will compound annually at the end of the year, and you’re in the 28% income tax bracket. Let’s also assume all investments earn 7% each year in income. If you invest that money in an alternative that’s taxed each year, in 30 years you’ll accumulate a total of $43,716. If you invest that money in an alternative that’s taxed each year, in 30 years you’ll accumulate a total of $43,716.

Putting Money in an Annuity

There are two distinct phases to any annuity contract. The phase where you put money in is called the accumulation phase. The phase where you take money out is called the distribution phase. In the accumulation phase, you can choose to pay premiums in one of two ways: You can pay in one lump sum. Or, you can make a series of premium payments over time. These payments can be of equal amounts contributed at equal intervals (for example, $500 a month), or you can make payments of variable amounts at irregular intervals, depending on the terms of the contract.

You can put money in an annuity and let it earn interest, or you can begin to receive payments almost immediately.

Immediate vs. Deferred Annuities

Immediate annuities

Typically purchased with a single lump-sum premium

Payouts begin within one year of purchase

Deferred annuities

Typically purchased with periodic payments

Payout begins at some future date, allowing time for tax-deferred growth

Contact us for more details.