Free Annuity Guides

Considering the pros and cons of an annuity, you should think about investing in one after you have fully benefited from other retirement products that offer tax benefits as well, for example, IRA and 401(k) plans. You should consider annuities only if you have a little extra money to invest and save for your retirement, even more so if you belong to a higher tax slab, to benefit from the tax-free growth of your money.

The reason for that simply is that you may face some problems with an annuity. Annuities are costly, and do not allow you to comfortably make withdrawals. A withdrawal is discouraged by a 10% penalty, and a surrender charge, the rate of which may range from 7 to 20%, depending on your product. Moreover, you would also have to pay up to 10% in commission to the agents who sold you the annuity plan. And with all the costs added up, the annual charges of an annuity amount to 3%, which is even higher than that of a mutual fund.

And speaking of mutual funds, evaluate your available investment opportunities before you invest in an annuity. An insurance agent will do his or her best to convince you to buy the annuity by propagating only its benefits, as the annual costs and rules are often very complex and hard to understand. Don’t get easily impressed and extract as much information about the product as possible.  Also check mutual funds out, learn about their costs and returns and research their terms and conditions, maybe you would be better off managing your own funds and generating an income stream.

You must also understand the rules and regulations about the withdrawals. Only the earnings on your investment will be taxed, and your contribution to the annuity. The maximum tax rate these days is 35%, and you can be sure these rates will not increase any time soon.

Variable annuities have quickly become the large part of Americans’ retirement and investment plans.  You’ve heard about them, but what are they?

A variable annuity is a contract between you an insurance company where the insurer agrees to make periodic payments to you, which will begin immediately or at a later date that you decide.  You can purchase a variable annuity contract by making a one-time payment or a series of purchase payments.

A variable annuity allows you to choose from a range of investment options such as mutual funds that invests in stocks, bonds and/or money market instruments.  The value of your investment will depend on the performance of the investment options that you choose.

Benefits of a Variable Annuity

• Periodic Payments – Variable annuities allow you, your spouse or any other person on the contract, to receive money for the rest of his or her life.  This is important because it offers protection to the contract holder who outlives his or her assets during retirement.
• Death Benefits – If you happen to pass away before the insurance company has started to make payments to you, your beneficiary is guaranteed to receive a predetermined amount, which is usually at least the same amount as your purchase payments.
• Tax-Deferred* – You will not pay taxes on the income and investment gains from your variable annuity until you withdraw your money.

Phases of a Variable Annuity

Phase 1 – Accumulation Phase

In this phase, you make purchase payments that you allocate to various investment options.  For example, you can allocate 30% in stocks, 50% in bonds and 20% in money market instruments.  You have complete control over where you invest your money.

Phase 2 – Payout Phase

In the beginning, you may receive your purchase payments plus investment income and any gains as a lump sum payment.  Or, if you prefer to receive cash periodically (monthly, quarterly or annually), the option is all yours.  The periodic payment option also allows you to choose how long the payments will last.