Strength of the Insurance Company
Rate Of Return
Benefit - If a premature death should occur, the accumulated
funds within your annuity may be transferred to your named beneficiaries,
avoiding the expense, delay, frustration and publicity of the
probate process. Like most assets, the annuity is part of your
taxable estate. The beneficiaries can generally chose to receive
a lump sum payment, or a guaranteed monthly income.
pensions. You are under minimum retirement age and receive payments
because you retired on disability. If, at the time of your retirement,
you were permanently and totally disabled, you may be eligible
for the credit for the elderly or the disabled.
Why Should I Invest in an Annuity?
Before you invest, consider these few things:
much annuity income will I need in addition to social security,
pensions, savings and investments?
I need an income only for myself or for someone else also?
Many people today are using tax-deferred annuities as the foundation
of their overall financial plan instead of certificates of deposit
or savings accounts. Although CD's and Annuities are very similar
there are significant differences between the two. The most
important difference is that annuities allow for the deferral
of the taxes due on the interest earned until the interest is
withdrawal! By postponing the that tax width a tax-deferred
annuity, your money compounds faster because you can earn interest
on dollars that would have otherwise been paid to the IRS. Later,
if you decide to take a monthly income, your taxes can be less
because they will be spread out over a period of years. Like
Certificates of Deposits, annuities have a penalty for early
surrender, however most annuity contracts have a liberal "free
You pay NO taxes while your money is compounding. The IRS, will,
eventually collects taxes on the "earnings" of your annuity.
When you withdraw money from your annuity the earnings, according
to the IRS, are withdrawn first. The "earnings" are subject
to "ordinary income taxes" in they year in which they are withdrawn.
You can also pay a lower tax on random withdrawals because you
control the tax year in which the withdrawals are made, and
only pay taxes on the interest withdrawn, Tax deferral gives
you control over an important expense - your taxes. Any time
you control an expense, you can minimize it. The longer you
can postpone this particular expense, the greater your gain
when compared to the gain you would make with a fully taxable
account. Keep in mind that capital gain distributions in a mutual
fund are taxed at capital gains rates. To illustrate the increased
earnings capacity of tax-deferred interest, compare it to fully
taxable earnings. $25,000 at 6.0% will earn $1,500 of interest
in a year. A 28% tax bracket means that approximately $420 of
those earnings will be lost in taxes, leaving only $1,080 to
compound the next year. If these same earnings were tax-deferred,
the full $1,500 would be available to earn even more interest.
The longer you can postpone taxes, the greater the gain. The
IRS also has what it calls a "Premature Distributions". If you
withdraw your earnings and your under the age of 59 1/2. Not
only are your earnings taxed at ordinary income tax rates, the
IRS makes you pay a penalty of an additional 10% on the earnings
that are taxed.
Your tax-deferred annuity is safe.
qualified legal reserve life insurance company is required to
meet its contractual obligations to you. These reserves must,
at all times, be equal to the withdrawal value of your annuity
policy. In addition to reserves, state law also requires certain
levels of capital and surplus to further increase policyholder
protection. Legal reserve refers to the strict financial requirements
that must be met by an insurance company to protect the money
paid in by all policyholders. These reserves must be at all times,
equal to the withdrawal value (principal plus interest less early
withdrawal fees, if any) of every annuity policy. State insurance
laws also require that a life insurance company must maintain
certain minimum levels of capital and surplus, which provide additional
An immediate annuity provides a secure and guaranteed way
to turn the money you set aside for retirement into retirement
income. You give the insurance company a lump sum of money (called
a premium) and in return, you're guaranteed a steady stream of
income payments for your entire life, or for a period of time
that you specify.
A deferred annuity helps you set-aside funds
today for future retirement with tax-"deferred" growth on your
principal. Once you've accumulated the money you need for retirement,
you can choose to receive regular income at a date that you choose
in the future. You can decide to receive these guaranteed regular
income payments for a period of time or over your lifetime. A
deferred annuity may be funded with either a single lump sum of
money, and/or over a period of time with several smaller sums
allowing you the flexibility to tailor your savings rate to your
unique situation. While you're setting aside money in a deferred
annuity, the funds build compounding over time at a tax-deferred