Annuities

Annuities are an investment vehicle.  Words that best describe annuities include:

            Safe
            Conservative
            Tax deferral
            Tax efficient
            Principal is protected
            Lifetime income guaranteed for life

When investing for your future, a wise approach is to diversify your investments.  In other words, divide your saving dollars into more than one type of investment, spreading the risk.  

One widely acceptable position on risk is dependent upon time.  The more time you have until retirement, the more able you should be to accept risk as part of your investment portfolio.  How much risk? One formula is to subtract your age from 100. If you are 45 years old, subtracting 45 from 100 leaves 55.  Using this formula you should have no more than 55% of your investment dollars in the more volatile, risky investments.  That other 45% should be in “safe”, “conservative”, “principal is protected” vehicles that, if possible, offer “tax deferral” and “tax efficient” access.

Another current philosophy is that because people are living well beyond the traditional retirement age, this conservative approach will result in running out of savings before running out of life.  If you agree with this approach then you need to be reviewing and adjusting your investment portfolio on an annual basis.

With either assumption, an annuity provides a basis of guarantees that form a safe basis for the future.

Dollars invested in annuities must be considered long term investments.  Why? Because there are substantial penalties if tapped into early. 

First, if you are under 59 1/2 years old there is an income tax penalty. 

Secondly, all annuities come with surrender charges.  These charges apply if you take dollars out of the annuity within the surrender period.  There are some exceptions to this surrender penalty.  One is that almost all the annuities now being marketed allow for an annual withdrawal of some of the dollars.  Generally this is limited to 10%.  Another frequent exception is in the event of entering a nursing home.

If it’s long term growth, partnered with what is sometimes called the eighth wonder of the world—compound tax deferred growth—an annuity may be the perfect place to park some of your dollars.

For an annuity proposal complete the Request for Proposal or call me at 1-800-809-3467.