You may be saving for retirement in a tax-free company-sponsored pension plan or IRA (Individual Retirement Account). Did you know that you can augment those savings by also investing in a tax-deferred annuity? Once you retire, you can also make a tax-free rollover of the funds you have built up in your company pension plan or your IRA into an immediate annuity. In fact, many pension plans will allow you to shop around for the highest annuity rates in which to roll over your account.
Purchasing a Deferred Annuity to Augment Your Pension Savings
A deferred annuity is a type of long-term, tax-deferred personal retirement account designed to help grow the funds of your pension, and provide a steady income stream once you are retired. A deferred annuity has two phases: the savings and investing phase, and the retirement income phase. During the savings and investing phase, your assets are accumulated for potential growth. During the retirement income phase, you have a choice of how to structure the income you've accumulated. You can choose systematic withdrawals, take income as you need it, or convert your savings into a series of steady income payments. You can elect to receive these payments for a set time period, or you can choose a guaranteed income for life. Deferred annuities fall into two main categories: CD and traditional fixed deferred annuities.
- CD annuity — This type of fixed annuity guarantees a level interest rate for each year up to 10 years. Somewhat like a Certificate of Deposit you can buy at a bank, this annuity guarantees a fixed interest rate for a specified period of time, which you determine at the time you set up your annuity (known as the "rate guarantee period"). Your interest rate does not change for the duration of the rate guarantee period you've selected. Click here to view our current interest rates for CD-type fixed annuities.
- Traditional fixed deferred annuity — A traditional fixed deferred annuity, sometimes referred to as an annually renewable deferred annuity, earns an interest rate which is reset each year at the discretion of the insurance company. This annuity is different than the CD annuity described above, in that the interest rate you earn on your pension funded deposit each year can fluctuate both up and down.
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Funding an Immediate Annuity with Your Pension
An immediate or "straight life" annuity begins making regular monthly payments to you shortly after you deposit the funds from your pension with the insurance company of your choice. If you are near retirement and/or wish to turn over your pension fund (or your 401K, IRA, or sale of a home, etc.) into a secure, guaranteed income stream, an immediate annuity might be right for you. An immediate annuity rate is influenced by your age, gender, and choice of payment options, all factors which have no bearing on a deferred annuity rate.