Retirement AnnuitiesInsure Your Money

In case you are new to annuities or have been misinformed about them, here are some highlights about annuities and their recommended use.

Annuities 101

An annuity is an insurance contract between you (the annuity owner and annuitant) and the insurance company. The insurance company may provide guarantees on minimum interest rate earned, principal and death benefit; depending on your contract.

Annuities are not FDIC insured

If there has ever been doubt in your mind, the guarantees are provided by the insurance company and they are subject to the company’s ability to pay its obligations. That is why the insurance company ratings are important. The insurance companies are regulated by state authorities who will intervene if they believe an insurance company is at risk of financial failure.

Annuities are tax-deferred

Tax-deferred means all the earnings inside the annuity will not be taxed until you make a withdrawal. Is this good or bad? It is a good benefit so long you do not use your money before age 59 1/2. It is bad if you make a withdrawal before this age because you will pay a 10% penalty on your earnings. The earning part of the withdrawal is added to you income that year and will be subject to income taxes.

There are two phases to an annuity, the accumulation phase and the income phase. During the accumulation phase your goal is to grow your principal as much as possible, naturally. You can use different accumulation options, based on your risk tolerance.

Types of annuities

Fixed Annuities -pay a fixed interest rate announced every year for the following 12 months. No fluctuation of principal.

Fixed Indexed Annuities -pay an interest rate based on the return of a major stock index, or a minimum fixed rate (usually of 1%) if the index is down that year. No fluctuation on the value principal (no loss of value in down years)

Variable Annuities -The value of your annuity is based on the performance of the sub-accounts in which your money is invested. A sub-account is the technical term for the mutual fund-like investments accounts that you have as investment option in a variable annuity. Your principal is subject to market value fluctuations. We do not offer variable annuities.

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