October 17, 2018 The Skanner Portland & Seattle Page 9
Financial Literacy
Financial Focus – Can You Benefit From an Annuity?
etirement
isn’t
cheap. You may
have heard that
you will need 70
percent to 80 percent of
your pre-retirement in-
come, but the real figure
might even be higher, de-
pending on your circum-
stances.
And retirement isn’t
short, either – you could
spend two or three de-
cades as a retiree. Taken
together, these factors
highlight the need to
identify as many sourc-
es of retirement income
as possible – and one of
these sources might be
an annuity.
A fixed annuity is an
insurance product that
allows you to make a
lump-sum
investment
and can provide insured
payments to you for a
designated number of
years, or for life. A fixed
annuity guarantees a
rate of interest for a
stated period that will
be unaffected by market
fluctuations. Your prin-
cipal investment and the
specified interest rate
are guaranteed based on
the claims-paying ability
R
of the issuing company.
A fixed annuity offers
some key benefits, in-
cluding the following:
No contribution limit
No IRS contribution
limits apply to non-qual-
ified annuities – that is,
annuities held outside
a tax-advantaged re-
tirement plan, such as a
“
placed in a taxable in-
vestment. Earnings will
be taxed at your ordi-
nary income rate once
you start taking with-
drawals, and withdraw-
als prior to age 59-1/2
may be subject to a 10%
federal tax penalty. (You
will want to consult with
your tax advisor before
Retirement isn’t cheap. You
may have heard that you
will need 70 percent to 80
percent of your pre-retire-
ment income, but the real
figure might even be higher,
depending on your circum-
stances
defined benefit pension
plan, Section 403(b) plan
(TSA) or an IRA. This can
be especially valuable if
you are already close to
retirement age and think
you might be short on
savings.
Tax deferred
accumulation
The interest you earn
is tax deferred and will
compound
annually,
meaning your money
may accumulate faster
than it would if it were
withdrawing from your
annuity.)
Income for life
You can take your an-
nuity payout as a lump
sum or choose to receive
payments for a set num-
ber of years, or for the
rest of your life. Your in-
come amount will be de-
termined by the value in
your contract and your
life expectancy.
Death benefit
If your annuity is still
in the “accumulation”
PHOTO: ISTOCKPHOTO / NNPA
By Arnetta Tolley
The Pasadena Journal
If a fixed annuity is appropriate for your situation, you may find it can join your other income pools –
Social Security, 401(k), IRA, etc. – to provide you with the resources you need to enjoy the retirement
lifestyle you’ve envisioned.
phase at the time of your
death (meaning you ha-
ven’t yet begun collect-
ing payments), it might
provide a death benefit
to the beneficiary you’ve
named. Typically, this
lump sum will be the
greater of your account
balance or the total of all
premiums paid, although
some annuities provide
additional options. Be
aware, though, that the
death benefit may be tax-
able.
As is the case with all
investments, a fixed an-
nuity does have some
caveats. Most important,
an annuity is a long-term
investment – if you pull
money out within the
first several years after
your purchase, you like-
ly will face some prohib-
itive surrender charges.
These charges decline
each year, typically
reaching zero after sev-
en years. Such withdraw-
als also may be subject
to a market value adjust-
ment.
One more thing to keep
in mind: Different annu-
ities come with different
fees, and the higher the
fee, the lower your “real”
return will be. Conse-
quently, you will want
to compare fees before
investing.
If a fixed annuity is ap-
propriate for your situa-
tion, you may find it can
join your other income
pools – Social Securi-
ty, 401(k), IRA, etc. – to
provide you with the re-
sources you need to en-
joy the retirement life-
style you’ve envisioned.
