An annuity is a tax-deferred savings account issued by a financial advisor at an insurance company. So what are the does this mean to you? Well with an annuity, the principal return is tax-deferred, and you will only pay taxes upon withdrawal of funds. So as your saving – you pay no taxes! The result over the long-term is more cash available to earn interest.

When you’re ready to withdraw funds from your annuity, you may choose your payout option for guaranteed income. With the payout option, you can choose to receive either fixed or variable payouts for a specific amount of time. Once your payout income begins, you will pay taxes only as funds are paid to you. This offers more security and more funds in your account to earn interest.

There are fees associated with the purchase of an annuity. These vary depending on the type of annuity you purchase and may include these charges: administration fee, contract fee, mortality and expense risk fee, and a withdrawal fee. Check with your annuity financial planner to find out the fees you may occur.

There are two ways to accumulate annuity growth.

1. Fixed-Rate – a fixed rate of return

2. Variable Rate – growth potential of investing in the stock and bond market

How to access funds?

There are two ways to receive your funds: fixed or deferred. Make sure you choose the correct option for you and your family because you can’t change the payout option or frequency of the payments.

The death benefit provision is another important feature of an annuity. The annuity issuer guarantees that upon your death that at least the premiums paid into the annuity are paid back to your beneficiaries.

Annuity Features

Here’s a list of features for an annuity you should consider before investing:

  • Growth Tax-Deferred.
  • Lifetime Income
  • Principal Guarantee
  • Emergency Liquidity
  • Contributions With NO Limit
  • Death Benefits
  • NO Fees
  • Bonus Rate
  • Insurance Company Reputation
  • Rate Of Return
  • Your Investment Options
  • Fixed vs. Variable
  • Surrender Charges

Growth Tax-Deferred. An annuity grows tax-deferred. Any profits are taxed on payment to you.

Lifetime Income. Your annuity can produce a lifetime income, guaranteed. It doesn’t matter how long you live.

Principal Guarantee. With some variable annuities, the total amount you’ve paid into the annuity is safe or at minimal risk.

Emergency Liquidity. You may withdraw up to 25% of the profit on an annuity if diagnosed with a serious illness (e.g., heart attack, cancer, etc.).

Contributions With NO Limit. Invest any amount you would like, with no limits or penalty.

Death Benefits. An option that allows you beneficiaries to receive a death benefit equal to the number of funds you’ve paid into your annuity or the current value of the investment.

No Fees. Annuities are usually no-fee investments.

Bonus Rate. Certain annuities offer bonuses to investors.

Insurance Company Reputation. Your annuity should be backed by an issuing insurance company.

Rate Of Return. Different annuities offer different rates of returns, check with a financial professional to determine which investment is best for you.

Your Investment Options. Some annuity investment choices are money markets, mutual funds, government securities, and stock.

Fixed vs. Variable. If you need a guaranteed rate of return, then go with a fixed-rate annuity. A Variable-rate annuity rate will vary and may yield a higher return for your investment, but it also offers higher risks.

Surrender Charges. If you choose to withdrawal more than the allotted yearly funds, you will have to pay surrender charges.

How did Annuities work?

An annuity is a simple contract. You will agree to invest a single or series of payments into the annuity investment. In exchange, the company will pay you an income that starts on a specific date.

When you invest in an annuity, the annuity will grow tax-deferred. When you begin receiving income from your annuity, the “growth” amount of the annuity received will be taxed. More than likely you will be retired when you start to receive your annuity payments. This is beneficial, because your tax bracket will lower after retirement, so you’ll pay fewer taxes.

How Does An Annuity Differ From A Life Insurance Policy?

Life insurance pays out cash benefits to your family after you pass away. Annuities will start paying you an income at/ after retirement. The annuity will continue paying an income while you’re alive. (Almost all annuities will stop paying money when you pass away; though some annuities can continue paying money to your beneficiaries after you pass away if that option is chosen.)

Be informed!

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