It is said that annuities aren’t bought, they’re sold . That means, not many people go shopping with the intention of buying an annuity. Rather,
a financial representative brings different annuity options to the table,
to help a client build a plan for their financial future.
Annuities have a place in financial planning, especially when there’s a need for a steady income stream throughout retirement. Here are several important points to be a ware of while you ’re looking at different
annuities with the guidance of a financial professional:
An annuity can provide guaranteed income. This is a primary benefit
that an annuity offers. Guaranteed income can help you especially
in retirement, when you’re seeking to replace the steady income you used
to receive through regular paychecks.
The annuity contract will spell out how long income payments
are guaranteed—usually between five and 20 years,
although some annuities extend these guarantees for as long as you
live (at an additional fee.) Keep in mind that income guarantees
are backed by the claims-paying ability of the insurer offering the annuity.
There are different types of annuities. It can be confusing to see a wide range of options in the annuity marketplace.
But when you know what you want from an annuity, shopping becomes much easier. Want income right away? Look for immediate annuities. Want
to build income for later? Look at deferred annuities. Want to manage
how your annuity value grows? Look at variable annuities . Want a generally stable rate of growth? Look for fixed annuities. Your annuity value grows tax -deferred. The benefit of tax-deferred growth means more of the earnings you achieve can compound to boost future potential growth and
increase the annuity value available for retirement income.
Annuity guarantees come with fees. You don’t get something for nothing, and that’s especially true with annuities. Annuity providers cover the risk of income guarantees by charging fees against the value of the annuity. Fees for some annuities can be high, especially in relation to fees you may pay
for other accounts of investment vehicles.
Annuity withdrawals are taxed as ordinary income. If you purchased and funded the annuity with pre-tax income, you’ll be taxed on the full amount of your withdrawals—principal plus earnings—similar to how IRA and 401(k) withdrawals are taxed. But if the money you used to fund annuity had already been taxed, you pay tax only on the earnings you withdraw. Withdrawals of annuity earnings count as ordinary income for tax purposes.
We would be happy to talk with you about options that work for your finances.
Securities and advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC. Longleaf Wealth Management Group, LLC and LPL Financial are separate entities.