Let’s face it: the retirement landscape has changed. Here’s what we know:
- Pensions are vanishing
- 401(k) values are dropping
- The future of Social Security is uncertain
Is there any way you can still count on a secure retirement? Yes!
We show you how in our video below!
Annuities: Shore Up Your Retirement
The retirement you’ve dreamed of is waiting. All you need is a guaranteed income annuity!
Building a nest egg is challenging in today’s economy. Housing prices are rising, but not quickly enough. A jittery stock market makes it hard to depend on your 401(k). More employers, public and private, are slashing pensions. The facts speak for themselves:
- 88% of Americans worry about saving for retirement.
- 40% of Baby Boomers now plan to work “until they drop.”
- 29% of American workers have less than $1,000 saved up for retirement.
Isn’t there a better way to pay for retirement? We think so.
Annuities provide a source of guaranteed income during your retirement, giving you peace of mind. You pay into an annuity either in one lump sum (when you cash out a pension or 401(k), for example) or in monthly payments that collect over time. Then, when you retire, that money comes back to you in monthly installments. It’s guaranteed income for the rest of your life, independent of market fluctuations. Let’s take a look at the two different types of annuities below.
Learn more about how an annuity can protect your retirement! Give us a call at 1-800-823-4852.
An immediate annuity begins paying you right away (or, depending on the way your policy is written, after a few months or even a year). For this to happen, you need to fund your policy right away, too. It’s easiest to do this with one lump-sum payment. This is why you’ll also hear these annuities referred to as single-premium immediate annuities, or SPIA.
How can you fund an immediate annuity? Think of the other financial resources you have. Some of our clients use a cashed-out pension or 401K. Putting that money in an annuity is a good way of making sure that money is saved, parceled out as you need it, and working to gain interest in the meantime.
When you buy your annuity, you can set it up so that the payments last for a fixed period or for your entire life. Here are some of the options:
*A period certain annuity means you’ll receive payments for a specific period of time.
*A lifetime annuity pays you for as long as you live.
*A guaranteed period allows your heirs to continue receiving payments if you don’t outlive the guaranteed period.
*A joint-and-survivor annuity covers you and your spouse, and ends after the last spouse passes away
With a deferred annuity, you make payments over time that will come back to you during retirement. The period during which you pay into the annuity is called the “accumulation phase” or “deferment period.” This period can last as long as you want. You’re free to invest even more money than your minimum monthly payments, too, if you like. The more money you put in, the bigger your payments will be when you start receiving them.
As you pay into the annuity, that money generates interest. When you tell your insurer that you want to begin your “income phase” (also called the “pension”), the insurer will start paying you back out of the money they’ve been storing in your annuity. You have all the same payment options listed in the bullet points for immediate annuities above.
Who buys deferred annuities? Usually, people who know it’s easiest to save for retirement while you have a salary coming in consistently. During your peak earning years, an annuity can really help you save up for a secure retirement.
Annuities as an Investment Strategy
It’s also possible to use annuities as part of an overall investment strategy. Technically, annuities are a life insurance product, not an investment product. This means different rules apply to them in terms of taxes. They tend to offer better interest rates than typical investment products like interest-bearing savings accounts, CDs, or money market accounts. They also have a big tax advantage these other investment tools don’t have.
The interest you earn on your annuity is subject to income tax, but the taxes don’t need to be paid until your income phase. What this means is you get to hold onto your interest and earn compound interest on it, all before any tax is due. Compare this with CDs, which do require you to pay taxes each year as you accrue interest.
Let’s say you put $1,000 into a deferred annuity and another $1,000 into a CD. Both guarantee an interest rate of 6%. Now let’s assume there’s a tax rate of 20% and that you cash in both products after 5 years. This is what your side-by-side comparison looks like:
And the winner is…the annuity! This example uses a very small amount of money. Imagine how that difference would stack up with an annuity worth $250,000 or $500,000! With the CD, you pay taxes on each year’s interest. With the annuity, you pay no taxes until the end; meanwhile, you earn compound interest on the money that will eventually be paid in taxes. The bottom line is…you walk away with more money!
Ready to get started? Give us a call at 1-800-823-4852.