Annuities Highlights
By Joel Zimmerman

Retirement Planning, the Annuities Way

An annuity is a long-term insurance contract wherein you make an investment in the plan and in return receive payments from it on a future date or a series of dates. The income you get could be a lump sum payment or a monthly/quarterly/annual payout, depending on the terms of your annuity contract.

How Do Annuities Fit into Your Retirement Plan?

Annuities provide the perfect balance of growth and security, with the added advantage of regular payouts in the future. A vast number of financial studies have indicated that retirees and pre-retirees who had invested in annuities during their working years were more confident of planning their retirement and desired lifestyle after their retirement.

Planning Your Retirement with Annuities

Annuities are increasingly gaining ground in the realm of retirement planning, primarily because they allow you to convert a lump sum of money into a guaranteed steady income stream (for a number of years, or your lifetime). Annuity investments are used for accumulating assets, supplementing social security or receiving guaranteed income for life.

Retirement Advantages of Investing in Annuities

The greatest advantage of annuities is that you can stash away large amounts of cash and defer paying taxes on it. As long as you leave the amount untouched till retirement, the growth on annuities is tax-free, and more importantly, there are no annual contribution limits. This helps save more and catch up if you began late.

The money compounds annually without a tax bill and withdrawals could be made in one shot or as a steady stream of income for a specific time frame.

Common Types of Annuities

There are mainly three types of annuities you could choose to invest in, and these are:

  • Fixed Annuity 

    A fixed annuity, as the name suggests provides fixed payments over time, and is typically considered the most secure form of annuity investment for retirement planning. Much like a bank deposit, you deposit a lump sum amount which is invested in the plan for a fixed period of time.
    The insurance company agrees to pay you a fixed amount of interest that’s tax-free, and you can make withdrawals after a certain term has passed.

  • Variable Annuity 

    A variable annuity (VA) allows you to make investments which you can control. It should be considered as an option if you have money which you will not need for several years, and don’t mind some risk. The primary mode of investment is into the equity markets on a tax-advantage basis. This is mainly through mutual funds which include both growth stocks and income bonds.
    As an add on, variable annuities offer a death benefit that guarantees your beneficiary receives as much as the original investment, irrespective of the performance of the funds in which it was invested. Variable annuities offer a fluctuating rate of return, depending on the performance of accounts selected by the annuity owner and thus, part of the contract.

  • Indexed Annuity  

    An indexed annuity is a special class of annuities that yields returns on your contributions, based on a specified equity-based index. It is a type of fixed annuity which calculates performance based on upward and downward movements in common indices.
    These plans provide the opportunity to enjoy the benefits of positive upturns in the market with an element of principal protection. However, you would not be directly invested in the stock market. They combine tax deferral with guaranteed income, which makes them a compelling proposition in retirement planning.

Investing in annuities can greatly boost your retirement planning confidence and future financial security. Get in touch with the LifeCentra family to learn more about how they work and which ones are right for you!

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