By understanding how annuities work and the benefits such as tax-deferred growth and lifetime income you can make informed decisions.
The term annuity seems to have many different reactions and responses depending on what people have read or heard. However, at its most basic level, an annuity is a financial contract between an insurance company and someone or something. The contract is an agreement to pay premiums in exchange for the insurance company providing a future income stream. This is either through withdrawals, annuitization or defined by a rider. Annuities are often used for a retirement strategy due to their long-term nature. In this article, we will take a deeper dive into what is an annuity:
Who Can Set-up an Annuity?
An annuity policy is comprised of an owner, annuitant, and beneficiary. The owner is the person responsible for making decisions about the policy and paying the premium. An owner of an annuity is typically an individual but could also be a retirement plan, trust, charity, or organization.
What about the annuitant and beneficiary?
The annuitant is the person whose life is measured by the insurance company. The death of the annuitant triggers a death benefit, and their age is used to calculate income payments. The annuitant could be the same as the owner or different.
The beneficiary is a person who will receive a death benefit payout, if there is an account value, when the owner/annuity passes away.
How does an annuity grow?
There are numerous types of annuities; fixed, variable, and fixed indexed. All of these annuities offer the same contract structure but vary on how the premium grows. Let’s look at how these three types of annuities grow,
For every type of annuity, the account growth is tax-deferred; meaning taxes are not paid until the money is withdrawn from the annuity.
What if I need to access my money?
Annuities have a gradually decreasing percentage of withdrawal charges, that will be incurred if money is withdrawn from the policy (including total surrender). Annuities can have varying withdrawal schedules. However, most annuities offer the ability to take 10% free withdrawals every contract anniversary.
As annuities are designed to be a long-term solution designed for retirement, withdrawals prior to 59 ½ could be subject to the IRS early withdrawal penalty.
In summary, annuities can be a valuable tool in a comprehensive retirement strategy. By understanding how annuities work and the benefits such as tax-deferred growth and lifetime income you can make informed decisions.
Within 403(b) and 457(b) retirement plans, National Life offers two products.
FIT Secure Growth
Maximum upside interest crediting potential for long-term accumulation objectives
Meets the desire for growth and protection of hard-earned savings with the flexibility to self-distribute down the road.
FIT Select Income
Choice between maximum potential income focus or balance of accumulation and income focus
Addresses combined goals of saving more now while providing the potential for increasing future income, then locking in any increases.
For more information, contact your local Agent or National Life Group.
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