Choosing Among Basic Annuities
Of the two-thirds of Americans who calculated how much money they will need in retirement, nearly half made changes in their retirement planning after crunching the numbers. Chief among the changes were increasing savings and changing investment allocations.
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If you want to increase your retirement savings plan, annuities may be an appealing option. They offer a diverse selection of products that can be customized to fit your particular situation.
Basic Annuity Types
Fixed or Variable
A fixed annuity pays a guaranteed rate of interest for a specified period of time, generally one to three years. After that time, the contract may be adjusted to reflect current conditions for another specified period, but most contracts have an interest rate floor that ensures a minimum return. Like most annuity contracts, fixed annuities offer flexible payout options, including a lifetime benefit period that pays a fixed amount each month for the rest of your life.
A variable annuity typically offers the opportunity to invest a portion of your premium in sub-accounts that may pursue returns in the stock or bond markets. With this type of annuity, your principal is subject to the investment risks of the sub-accounts you choose. Generally, variable annuities contain mortality and expense charges, account fees, investment management fees, and administrative fees. Variable annuity sub-accounts fluctuate with changes in market conditions, and when surrendered, the principal may be worth more or less than the original amount invested. Variable annuities are long-term investment vehicles designed for retirement purposes. They are sold by prospectus only. Be sure to read the prospectus carefully before deciding whether to invest. The investment objectives of these sub-accounts can range from preservation of principal to aggressive growth. Any earnings accumulate tax deferred, and the payout amount in retirement is based on the account value.
Annuities combine personal choice with basic Security
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Fixed and variable annuities typically allow you to choose whether you want to receive an immediate income or payments in the future. With an immediate annuity, you give the issuer a lump sum and begin receiving payments right away. With a deferred annuity, you pay premiums during the accumulation phase and receive an income during the distribution phase.
Annuity contracts often involve large sums of money, so making sound decisions is critical. Having the appropriate annuities working for your retirement may be a tremendous benefit. Also important to remember: annuity withdrawals are taxed as ordinary income and may be subject to surrender charges plus a 10 percent federal income tax penalty if made prior to age 59½. Surrender charges may also apply during the early years of the contract. The guarantees of annuity contracts are contingent on the claims-paying ability of the issuing insurance company. Planning ahead can make an annuity contract a wonderful choice for those requiring both flexibility and security.
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