Annuities
Annuities are financial vehicles sold
through insurance companies that can pay a regular stream of income when you
retire. They provide a structured way to plan for retirement and offer
tax-deferred advantages on the interest you earn. Annuities can also provide
immediate payout of funds, giving you a vehicle for pension funds, Traditional
IRAs, SEP plans, etc.
Our Roth IRA is currently paying a SAFE interest rate of 4.6%.
Deferred Annuity
The return on deferred annuity contributions is tax-deferred until the annuity
payout begins, usually at retirement.
Generally, with a deferred annuity, you start with as little as $50, and make
contributions on a monthly or annual basis. The more you contribute, the more
your annuity grows. You can also set up a deferred annuity with a single
payment. Your single contribution continues to grow until the specified payout
time.
If you should die before receiving annuity payouts, your named beneficiary
receives the total of your contributions plus earnings in the annuity.
Immediate Annuity
This is a single payment annuity often purchased by people who are ready to
retire. It is a way to ensure an income stream from the proceeds of a pension
plan, Traditional IRA or other retirement vehicle. The level of monthly income
depends on the amount of time the annuity payouts are to be continued -- 10
years, 20 years or for the rest of your life.
Tax-Sheltered Annuity
Employees eligible to establish a Tax-Sheltered Annuity are those employees of:
Public schools, state colleges and universities
State departments of education
Qualifying non-profit, tax-exempt hospitals and medical schools
Parochial schools
Religious organizations
Private colleges and universities
Foundations and charitable institutions
(The above is not intended as a comprehensive listing of eligible employees.)
Contributions to a Tax-Sheltered Annuity are not included in the employee's
gross income, and are therefore not subject to federal income tax withholding.
They are, however, subject to Social Security tax.
Payout Options
You can schedule your payouts on a monthly, annual or other basis. You can also
choose the length of time you will receive payouts.
Fixed Term Certain Payout -- you receive a payout for a specified number of
years after you retire.
Life payout -- you receive a payout guaranteed for your life.
Fixed Term/Life Payout -- You receive payout for life. Should you die before the
annuity pays benefits for the specified term, your beneficiary receives the same
payout for the remainder of the term.
Joint Survivor Payout -- You and your spouse receive payout until one of you
dies. The survivor then receives a reduced payout for life. The reduced payout
is generally 50% to 100% of the original payout.
Comparing an Annuity with a CD
Mortality studies show people are living longer and will need to increase
savings to supplement Social Security. Annuities offer the advantage of being
tax-deferred until distributed. Distribution usually occurs when the annuitant
is retired and in a lower tax bracket. Interest on a CD is taxable every year
interest is earned.
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