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Annuities.gif (27031 bytes) Annuities

Introduction

As more people than ever before approach retirement, Federal benefit programs alone cannot be counted on to handle the retirement income needs of these future retirees. They need a way to supplement their retirement income. Relying solely on Social Security and pensions to meet retirement income goals could be a big mistake. Together, social security and pensions typically provide only about 1/2 of the income needed to maintain your standard of living in retirement (Source: Social Security Administration). The remaining half must come from your own personal savings and investments. Annuities could help fill that retirement income gap.

What Is An Annuity?

An annuity is a contract offered by an insurance company which:

can provide a lifetime income, and
provides a method of insuring against the possibility of exhausting your retirement income.

While all annuities pay you regular income - typically when you retire, there are several different kinds
of annuities and ways to fund them. Immediate annuities provide immediate income, while deferred annuities allow your money to grow before you begin using it. Fixed annuities provide more stable, less risky rates of return.

Why Consider Annuities?

Annuities are long-term investments, generally designed for retirement income needs. When used to its fullest advantage, an annuity provides:
Why Consider Annuities?

Annuities are long-term investments, generally designed for retirement income needs. When used to its fullest advantage, an annuity provides:

Why Consider Annuities?

Annuities are long-term investments, generally designed for retirement income needs. When used to its fullest advantage, an annuity provides:

Tax-deferred growth, which gives you a greater after-tax value
Safety of your principal, since your funds are invested with conservative insurance companies
A Variety of payout options for you and your survivors, including payments you cannot outlive
Withdrawal privileges with certain restrictions. Unlike certificates of deposits which have early withdrawal penalties that never disappear, annuity surrender charges disappear after a few years
Control over when taxes are paid, since you decide when to begin receiving income
The opportunity to defer taxes until you begin receiving income, taking advantage of a potentially lower income tax bracket

Types of Annuities

Here is a brief description of the major types of annuities available today:

1) Immediate Annuities

Generally purchased with a lump sum, typically from a pension plan, IRA or Keogh plan distribution.
Payments to you can start almost immediately.
You can decide whether you want to receive income payments for a specified period (i.e. 10 or
15 years) or for as long as you live.

2) Deferred Annuities

Can be funded with either a lump sum or over a period of time.
You can choose to receive a monthly income for life when you retire.
Offers compounded interest, and  allows your annuity funds to grow free of current taxation.
Generally, this results in a greater after-tax value than if funds grew on a  currently taxable basis.

3) Fixed Annuities

Can be funded with either a lump sum or over a period of time.
The interest rate can be guaranteed for several years, or change annually.
Funds grow steadily, based on a rate declared by the insurance company with a minimum guaranteed accumulation rate (applies only to fixed deferred annuities).

4) Indexed Annuities

Can be funded with either a lump sum or over a period of time.
Funds accumulate based on rates tied to a market index, such as Standard & Poor's 500 stock index.
You have the potential to realize greater returns tied to market performance than you have with a regular fixed annuity.
Return of your initial payment, or premium, is generally protected by a minimum guaranteed rate.
Indexed annuities are one of the most popular types of annuities sold today.

Tax Considerations

An annuity consists of the principal amount you have put into the annuity, and the earnings on that principal amount. Current tax laws treat withdrawals from annuities as if you are taking the earnings out first. You pay taxes on the earnings, while your principal is generally considered non-taxable. Different rules apply to tax qualified plans such as IRAs, Keoghs and other qualified pensions or profit-sharing plans. As with all financial or profit-sharing matters, be sure to consult your tax advisor.
The earnings in any partial or full surrender of your annuity are considered taxable income.
Federal withholding is required on any portion of a withdrawal representing earnings unless you elect otherwise. A mandatory 20% withholding may be required on withdrawals from qualified plans.
You may have to pay a penalty tax on the portion of withdrawals representing earnings you receive prior to age 59 1/2, unless certain conditions apply.
California imposes a state premium tax  on annuities. However most insurance companies absorb such tax, and it is therefore transparent to the annuity purchaser.

How do I get a "Free Proposal" on Annuities?

To receive a free proposal, simply click on the button immediately below this paragraph, then complete the form that appears on your screen while following the instructions on the form. You can also request a proposal for you spouse on the same form. Requesting a free proposal. does not place you under any obligation.

 

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For More Information Contact:

Henry Best Insurance Services
25820 Tennyson Lane, Stevenson Ranch, CA 91381
Tel: (818) 613-5380
FAX: (661) 284-3520

email: info@yourinsurancestore.com

Send E-mail to hbest@yourinsurancestore.com with questions or comments about this website.

Copyright 1998-2003 Henry Best Insurance Services
Last modified:  November 11, 2003