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REALTOR® Emeritus |  | TAX-DEFERRED SAVINGS VEHICLES | | ||
|  Are You Ready to Retire? Retirement Budgeting Sources of Retirement Income Tax-Deferred Savings Vehicles Estate Planning Selling Your Business Getting Your Business Ready for Sale Working With a Business Broker Closing-Your-Business Sale More Resources: Retirement Planning | Understanding Annuities Annuities are investment programs usually managed by insurance companies that are designed to provide protection against the possibility that you will outlive your accumulated assets. Like an IRA, the money you contribute to an annuity is tax-deferred; you don’t pay taxes until you withdraw it, which you can begin doing at age 59½. There are two basic forms of annuities. With either type, you may either contribute regularly over a period of years or make one large investment. 1. Fixed annuities guarantee minimum payment, generally based on a fairly low interest rate. Monies paid in are often invested in the insurance company’s general investment accounts. 2. Variable annuities offer the option of greater investment returns but offer few guarantees as to actual income. Annuity investors make payments that can be invested in one of several stock, bond, or fixed-income funds. The annuity benefits will depend upon how well the chosen investments perform, although many annuity providers offer added guarantees that the amount of the annuity payments will at least be equal to the actual cash investment made. TIP: In general, only consider an annuity after you have contributed all you can to other tax-deductible retirement vehicles. —Business Week, September 20, 1999 The upside:
TIP: Buying an annuity can be a good way to spend down your assets and enable you to qualify for Medicaid if you or your spouse needs long-term nursing home care. —U.S. News and World Report, October 22, 2001 The downside:
4 Things to Consider in Choosing an Annuity 1. Compare projected payouts. Different companies use different projections for lifespan and investment returns that can make a difference in what your annuity pays. Check out the Comparative Annuity Reports for some quick comparisons. 2. Check the annuity providers’ credit rating to be sure it will be solvent when you retire. 3. Don’t buy too early. The older you are when you purchase an annuity, the higher your annual payments will be. But if you are buying a life annuity, in which the payments end at your death, don’t wait too long or you may not be able to collect much. 4. Don’t put more than one-third of your total assets into an annuity; it limits your flexibility. Adapted from “Betting on a Long Life,” U.S. News and World Report, October 22, 2001 Estate Planning > | |