Annuities

What is an annuity?

An Annuity is an interest bearing financial contract between you and the insurance company designed to provide financial protection from outliving your retirement savings. Annuities combine the tax deferred savings and interest rate earnings of retirement accounts with the guaranteed income qualities of insurance.

Annuities are plans that you pay into for a fixed period of time in exchange for guaranteed payments received over a fixed period of time, and or for life. You cannot outlive this income. The number and amount of payments received from an annuity will depend on the age at the time you start receiving payments, the settlement option chosen, and your starting age as well as the total account value. If you live beyond life expectancy, you still will continue to receive monthly payments. Unlike other options that have risks, annuities are guaranteed.

With annuities your money grows tax deferred until withdrawn. Premiums for annuities can be made with a one time payment, with level premiums in periodic installments paid monthly, quarterly, semi-annually or annually, or with flexible premiums whereby the purchaser can vary the amount of payments provided the totals fall within a specified minimum and maximum range.

There are a number of annuities available and can be adjusted to meet the buyer’s needs. The two basic forms of annuities are Immediate and Deferred. Immediate Annuities are funded all at once and provide immediate payments starting in 30 days over a specified period, or for life. Deferred Annuities are funded with either a single sum or scheduled payments over a specified period. The funds grow tax deferred with payouts scheduled to begin at a specified future date.

Annuities can be Fixed and Indexed. Fixed Annuities guarantee a fixed interest rate to be paid on the premium deposits. Indexed Annuities are tied to a specified independent index and their return will vary with the performance of the index selected.

An annuity used in a Qualified Retirement plan offers an opportunity for a tax deduction with income generated being 100% taxable. When not used in a Qualified Retirement plan the majority of the income received is non-taxable due to the exclusion ratio or return of principal. Non-taxable income is the total of your original deposits divided by your life expectancy at the time you begin receiving payments.

To learn more about Annuities and whether they are the right vehicle for your specific retirement plan, please Seward Insurance.