Annuities are a great way to supplement your traditional sources of retirement income (e.g., social security and pension plans) and come with numerous living and death benefits for the insured.
The main benefit of annuity financing is the tax deferred growth. There are no income taxes paid until or unless you start making withdrawals. The withdrawal age is 59.5 and any withdrawals made before this age will be penalized 10% of the amount in addition to the income tax assessed.
Using annuities comes with a host of options. You can select from fixed annuity options that offer a stated rate of return for a specific amount of time or you can select an annuity with variable rates that will adjust with the market conditions. Variable annuity financing includes stocks, bonds, and money market instruments that are often packaged together to provide the best overall return over an extended period of time.
Annuities also allow unlimited contributions. Unlike IRAs (Roth and Traditional) and 401Ks, there are no limits on how much ‘after tax’ money you can contribute regardless of your income current income level or other sources of income. Also, as long as your annuity is not a part of a qualified retirement plan, the age for mandatory withdrawal is 72, not 59.5.
Living and death benefits can be added to your annuity financing strategy. Life benefits would include the option to receive lifetime income. These payments will last for the rest of your life and even a short while after—being passed on to a beneficiary for a pre-set amount and time period. In death, annuities don’t have to pass through probate and have the ability to be given to beneficiaries if desired.
The flexibility annuities offer to makes them a popular choice, but also an expensive one. Annuities tend to have higher fees than other retirement vehicles because of the living and death benefits along with other options and guarantees that are available (e.g., principal protection benefits). Be sure to research insurance companies and choose one that has documented and proven stability and financial strength.