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Tennessee Annuity Quotes and Information | Retirement Planning
What is an Annuity
An annuity is a form of life insurance, however the easiest way to understand it is that it is the opposite of insurance. The original idea behind an annuity was that it would prevent you from outliving your money. This type of insurance originated in Rome thousands of years ago. There have been changes since then, but the basic concept has been around longer than any of us.
Annuities are designed to be used to accumulate funds for retirement, or insure that the funds will outlive you. They can be set up to pay for the rest of your natural life like a pension, for a number of years like a structured settlement might, or pay interest after a duration of years, much like a certificate of deposit.
Annuities have a surrender length, which is the length of time you must hold the funds to withdraw them with no penalty. Longer surrender lengths can be unsuitable for older persons, as designing the annuity to outlive you violates the basic intention of the plan, and in the cases where you are attempting to accumulate or move funds to disperse them upon death, a single premium life insurance policy is a much more valid type of insurance for that purpose.
What are the basic types of Annuity
Annuities can be structured in several ways. The easiest one to understand functions much like a certificate of deposit at a bank. You deposit a certain dollar amount, and the insurance company guarantees a specified rate of return. They can also index the rate of return against the stock market, or other indexes, with a floor (lowest possible interest), and a cap (highest possible interest). The funds usually have to be left in the account for a set number of years, or face a penalty for early withdrawal.
Annuities can also be a guaranteed rate of income paid back to the annuitant for life, or a set period of years. You could deposit money into an annuity as a lump sum or over time, and then use it as a pension style retirement income payment. They are very flexible in design, allowing inflation controls, multiple persons who will receive payment for life, and other options. It is a very flexible type of investment.
What are my risks
One of the best features of an annuity is the limitation of risk. Typically an annuity pays a higher rate of interest than a CD would over the same time, yet has very similar risk features. The risk of loss with a fixed or indexed annuity is only that you might need to withdraw the funds early and face a penalty. There are policies that will allow you to withdraw the deposit amount no matter what, with no penalty, however you will forfeit any interest gained. The truth is that there is no more risk in a fixed annuity than there is in a bank CD, and the return offered is much higher. Some banks have even started selling annuities inside their own bank branches because they've been losing CD business to annuities.
Tax Advantages
Another advantage of annuities is that they can be held in an IRA, and be tax deferred. This type of investing is perfect for a small business owner wanting to set themselves up with a 401k style plan, or someone rolling over their old 401k into a private account when they leave their job. You can move the funds without any penalty and remove all possibility of loss from the stock market fluctuating and disrupting your retirement plans. Also, with most CD's or stocks, if you sell them you immediately owe capital gains tax. With an IRA annuity the tax is paid on interest as if it were income when you take the distributions out. This can save you a large percentage of taxes by taking advantage of the laws that allow you to get lower taxes for retirement savings.
It is much easier to plan around a guarantee of funds when you need them for retirement, rather than a possibility of value if you're lucky.
Call us today at 866-314-2747 for a free consultation to see if an Annuity product would meet your goals.