Investments
Variable/Fixed Annuities
Annuities are contracts with insurance companies that are often used as tax-deferred retirement savings vehicles. Deposits are made into annuity accounts on a regular basis or as a single deposit. No taxes are paid on the build up of dollars until the money is withdrawn at retirement age, when you are likely to be in a lower income tax bracket.
- A Fixed Annuity assures you that your money will earn a specified interest rate guaranteed by the insurance company. Thus, the insurance company bears all of the risk and pays you the guaranteed amount of annual interest regardless of market performance.
- A Variable Annuity offers variable investment options, such as mutual funds, in addition to the fixed interest option. You direct how you want your dollars invested amongst a selection of diversified options and assume the risk of investment performance.
If you have a shorter time period before retirement, you may prefer the guaranteed return of a Fixed Annuity. On the other hand, if you have many years until retirement, you may prefer the longer-term benefits possible with a Variable Annuity. Or, you may want to consider balancing the risk you incur by splitting your contributions between both types of annuities.
Just remember: Because the savings in either type of annuity are tax-deferred, there is a 10% penalty for withdrawal of funds before age 59-1/2 in addition to taxes owed on the earnings at that time.
Withdrawal flexibility at retirement
There are many pay-out options available on an annuity. You can arrange for a lump sum or partial withdrawal of funds, or you may want to develop a plan that prevents you from “outliving” your payments. It is also possible to have provisions that provide a guaranteed death benefit either as part of the basic contract or as a rider.
Annuities provide an additional retirement savings option that is very attractive to many people. To learn if they are appropriate for you and your family, contact United Financial Solutions for a personal consultation.