More and more Americans are turning to annuities to plan a secure retirement. Why? It's a way to save for retirement with guaranteed principal and guaranteed interest.
The advantage continues when you retire: You can receive an income guaranteed to last as long as you live. That's appealing to lots of wage earners, considering these facts:
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Fewer pensions. According to Financial Planning Magazine, only 20 percent of U.S. workers are now covered by a traditional pension plan. Pensions are being replaced by 401(k) and other plans that help you save for retirement, but leave it to you to turn your savings into income. |
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Longer lives. The Center for Disease Control reports that life expectancy has soared from 47 in 1900 to over 77 today. Longer retirements increase your risk of running out of money. |
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Social Security. There's concern that Social Security may become insolvent. Many proposals to save the system involve decreasing or delaying benefits. |
These factors all point to one conclusion: It's up to you to create your own retirement income. And that's exactly what annuities allow you to do.
When do you want your income to begin?
The answer to that question will tell you which of the two kinds of annuities - guaranteed savings annuity or guaranteed income annuity - you should consider.
If you need income later, guaranteed savings annuities allow you to save now with the option to turn your savings into income when you're ready.
Savings annuities have two special advantages:
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Earnings in a savings annuity aren't taxed until you actually take money out. This allows you to take advantage of triple compounding — interest on the initial amount, interest on the interest, and interest on what you would have paid in taxes each year. |
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Unlike many tax-advantaged retirement savings plans, there is no limit on how much money you can put into an annuity, and you can let it continue to earn interest even after you turn 70½. |
The government provides these tax advantages to encourage you to save for retirement. Given that, the IRS charges a 10 percent penalty for withdrawing money before age 59½.
In addition, savings annuities usually have surrender charges if you cash out during the first several years. So, be sure you’ve established a separate emergency fund that will allow you to leave your savings annuity intact when other needs arise.
If you need income now, consider a guaranteed income annuity.
When you purchase an income annuity, you exchange a lump sum of money for an income guaranteed to last your entire lifetime, no matter how long you live.
Concerned about what happens if you die earlier than expected? You can arrange for a guarantee that a certain number of payments will be made - if not to you, then to your beneficiary.
SAFE MONEY INVESTING WITH ANNUITIES
When meeting with clients and talking about their risk tolerance I have always recommended subtracting their age from 100 and never having more than that number in riskier investments. If you are age 65 you should have 65% of your money in very safe instruments or strategies and if you do enjoy some risk, put the other 35% under managed accounts where professionals recommend your choices. That way you still enjoy some higher returns but you don’t have to watch and study the market on a daily basis.
Your safe money should have a declared rate of return like a CD or a minimum rate with some up side growth like an EIA. Either way, your principle and past growth is protected against losses in the market. With FDIC coverage on CD’s and Legal Reserve requirement and State Guarantees Funds on EIA’s, your current values are protected up to $500,000 depending on where your money is invested.
Take advantage of tax deferral on both EIA’s and Life EIA’s in case you do not need an income. If you choose not to spend your earning, they grow tax deferred until you make a withdraw or until your death on EIA’s. With a Life EIA you can pass all unused money onto your beneficiaries’ tax free.
Probate in Washington State can take 6 months or even 2 years so we work hard setting up your investments so that most or all is passed on probate free. Probate costs are high, too, and the details are public record. With our EIA’s and Life EIA’s your money passes directly to your named beneficiary. No fuss, it is quick and doesn’t cost anything. There is no public record.
Protecting your assets form creditors, lawsuits and identity theft is an important part of Safe Money Investing. You may be able to protect most or all of your assets from creditors depending on where your money is held and what type of ownership is involved. As a Certified Estate Planner I work with a network of Attorneys and CPA’s to find the best ownership structure for you.
Liquidity and Accessibility is very important to both you and me. When your money is in CD’s, mutual funds, stocks, bonds and real estate, the timing is critical due to early withdraw penalties and other fees. We like products that allow you to access some of your money any time during the year and also the ability to turn your money into an income stream.
We like no fee and or no load products allowing 100% of your invested money to start working for you. We try to avoid fees, administrative expenses, consulting fees, start-up fees or fees to transfer the account to the beneficiary at death.
