Annuities will increase your retirement income
with guarantees that last a lifetime.
MARKET WAKE-UP CALL
In this edition of The Market Wake-Up Call, InsureEasyLife's President Evan Belaga discusses how can we get guaranteed incomes from annuities. The key word to look for in your policies is "guaranteed." How 75% of all the people he meets suffer from failing life insurance policies. He poses some serious questions that we all have to consider, such as: What is asset-backed insurance lending? And what challenges do we face as we go from employee to retiree? Will our coverage and benefits change? Evan also addresses what guarantees we can get in this low-interest environment?
NOT ALL ANNUITIES ARE CREATED EQUAL
Annuities are basically a contract with an insurance company, whereby you make a lump sum or series of payments that the insurance company invests. After a period of time, you decide when the insurance company returns your money plus earnings. You also decide if you want to receive your money in a lump sum or as a steady stream of payments over a number of years. The option to receive a stream of payments is called an annuitization – it’s one of the things that make an annuity unique. Knowing you will receive steady income payments to supplement Social Security and other retirement income is reassuring as you grow older. You can sleep well knowing your money is safe.
Annuities come in all shapes and sizes, and not all of them offer downside guarantees, like the annuity that we always recommend. Moreover, since only life insurance companies offer tax-deferred annuities, make sure that they have the proper ratings from A.M. Best, Standard & Poor’s and Fitch Ratings. Note, too, that we don’t recommend purchasing a deferred annuity that requires annuitization to receive your distributions. A few big-name insurance companies have been sued recently because they did not clearly disclose to the annuitant that they were not allowed to cash out their money in a lump sum. But this is not the case with most annuities. My point is that, like any investment, due diligence is always important.
Because your principal is guaranteed you will never lose the money you put in. In addition, your money will always earn interest and continue to grow. Savings annuities are an excellent choice for the conservative portion of a diversified retirement portfolio. Your money benefits from tax-deferred compounding because interest credited to your annuity isn't taxed until you begin taking payouts. This means you earn interest on your money and interest on your interest. This helps you reach your retirement goals faster. No contribution limits. Defer as much money from current taxation as you like — there are no contribution limits on annuities. If you have an annuity that is an IRA or retirement plan, you will have contribution limits. A flexible premium savings annuity allows additional deposits to be made over time. Other guaranteed savings annuities allow you to put money in just once.
Tax-deferred Guaranteed Savings Annuities can be purchased with:
- Personal checking or savings accounts
- Individual Retirement Accounts (IRAs)
- 401(k)s, 403(b)s and other employer plans
- Lump sum distributions from employer pensions
- The federal government's Thrift Savings Plan
Consider purchasing a guaranteed savings annuity if you:
- Want or need guaranteed supplemental income to reach your retirement goals in order to supplement employer savings programs, military retirement pay and Social Security.
- Want to defer having to pay taxes on your long-term retirement savings. The interest earnings on an Annuity isn't taxed until you withdraw it.
- Won't need to use your money until you're at least 59½ years old in exchange for generous tax advantages. Remember, the federal government imposes penalties for early withdrawals prior to age 59 ½.
- Desire an income stream that you'll never outlive. Your savings annuity can provide you with income that's guaranteed for your entire lifetime — no matter how long that is.
- Want to all your money paid back. Because your principal is guaranteed you will never lose the money you put in plus when you begin taking income, you can set up your payments to guarantee that — should you die before receiving the equivalent of the money you'd accumulated — payments will continue to your named beneficiary.
- Would like Flexible access. Instead of choosing guaranteed lifetime income from your annuity, you can: receive payments for a certain number of years or simply withdraw money when you need it.