Do You Understand This Important Retirement Tool?

Posted on July 17, 2013

Most people have heard of fixed annuities at some point in their adult lives but don’t really understand their importance as a retirement tool.

Today I am sharing with you a bit about how they can help you reach your retirement income goals faster and provide you with an income in retirement.

Tax deferred annuities, or savings annuities, serve people both before and during retirement, and they have a big advantage.  These annuities allow you to save money on a tax deferred basis and you will also earn interest on your money and gains that won’t be taxable until you make withdrawals.

By waiting until retirement to make withdrawals, you may find yourself in a lower tax bracket and potentially able to keep more of that money for yourself.  Just make sure you are at the age requirement of 59 and ½ or older, otherwise you may end up paying IRS penalties.

You can withdraw your money from a savings annuity in a lump sum or with periodic withdrawals.  You can also convert the annuity to an income stream, to provide you with fixed monthly payments.  There are tax implications no matter which type of withdrawal you decide on so just be aware of that.

With annuities there are no limits on how much money you can invest, no income requirements to prevent you from buying one, and no requirement that you begin withdrawing your money at age 70 and ½.

Another kind of annuity, the income annuity, offers guaranteed income.  Social Security, military benefits and pensions are the traditional sources of guaranteed income in retirement.

You may be realizing that these traditional sources alone will not be able to cover your family’s monthly expenses.

This income annuity is so popular because it provides you with monthly, fixed income for as long as you live.  You can set it up so that all the money you put in will be paid out to your or to a designated beneficiary.

Plan on being around for a  long time, and recognize that retirement income has become more of an individual responsibility than a company or government one.  Annuities can serve as one tool for providing your own personal pension plan.

If you would like to discuss annuities further or get more clarity, please don’t hesitate to contact us for assistance!

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