Tax-Deferred Growth

You pay no taxes on annuity earnings until they are withdrawn. This means all your money keeps compounding without being reduced by annual taxation. When you begin to receive payments from your annuity, only the gains are taxed, not your initial investment.

Three-Way Compounding

Your money can grow more quickly in an annuity due to three-way compounding. Your purchase payments, their earnings, and amounts that you would otherwise have paid out in taxes all remain in your account to grow and compound over time.

Death Benefit Provisions

Most annuities include some form of death benefit. A death benefit is simply a guarantee by the issuer that upon your death, your beneficiaries will receive your premiums. When purchasing annuities be sure to find out what type of death benefit you have. Also, look into the company’s history of paying claims to make sure you can rely on the money to be distributed after you die.

Additional Annuity Benefits

You do not have to qualify to purchase an annuity. As long as you are not yet receiving payments, there is also no IRS reporting necessary (no 1099 or tax bill). Annuities are also not subject to legal certification of validity and cannot be taken if you are sued by a creditor.

Tax Deferment

During the accumulation period, the time in which you build up your annuity investment, your contributions are not taxed. This allows you to put your money into a growth vehicle without being eaten up by taxes.

Annuities carry no tax reporting requirements, such as a 1099 form, as long as they are in the accumulation period.

Once an annuity begins its payout period, the benefits become subject to taxation.

Interest Accrual

Through annuities, your investment grows over time, but it is important that you know what the interest rates on your investment are.  On some annuities, rates decrease over time.  Make sure you understand how your savings will grow during the accumulation period.

Banded rates on annuities usually offer a higher interest rate early on after the purchase of the annuity, but then can pay a different rate in subsequent years.  It’s a good idea to discuss with your broker the rates offered throughout the life of the annuity.

Participation Rates

Participation rates refer to the portion of any value increase in an equity index that is reflected in the value of the equity-indexed annuity.  For example, an annuity with a 90 percent participation rate increases an annuity’s value by 90 percent of an index’s overall value increase.

Participation rates can vary widely among annuities.  Annuity dealers often guarantee certain rates for a specified time period or offer minimum or maximum rates on annuities.

Cap Rates

Some equity-indexed annuities put caps, or maximum rates, on the interest paid to the annuity holders.  Caps can be set periodically by the issuer, depending on the terms of the annuity contract.

Having Access to Your Investment

Once an annuity is purchased, buyers can still withdraw part of their investment, depending on the terms of the annuity. Many annuities allow buyers access to part of the principal or to the interest without a penalty.  In other cases, annuity holders pay a small surrender charge.

Some annuities offer bonuses that increase principal investments if buyers keep their money in the annuity over a specified length of time.

Other annuities do not charge any surrender fees at all, giving investors total access to their money at any time.

Lifetime Benefits

Because annuities pay benefits over the course of the purchaser’s lifetime, they guarantee a secure income until the end of your life.

In the event that the life the annuity holder ends before he or she has recouped the original investment, annuities can be structured to continue paying benefits to the holder’s estate.

Including a Single-Premium Immediate Annuity in retirement portfolio can guarantee income for life and can increase the wealth you pass on to your loved ones.

Guaranteed Minimum Income Benefits

A Guaranteed Minimum Income Benefit (GMIB) offers the annuity holder a minimum return on an investment no matter how the annuity performed.  Minimum payments are based on the estimated future value of the investment.

Planning Your Future

Annuities should pay an important role in your financial security after you retire.

• Annuities provide a guaranteed income until the end of your life.
• A lump sum payment can grow tax-free over the course of your working years.
• There is no limit to how much you can invest in annuities.

A Well-Rounded Portfolio

Annuities should be an important complement to an investment portfolio that includes a 401(k), 403(b) or IRA.  Annuities can also be used to fund IRAs or other types of retirement plans.

There are a variety of annuities available to fit your personal needs.