You might be considering an annuity as part of your retirement strategy. The benefits of tax-deferred growth and a guaranteed income stream in retirement can be quite appealing. But before you commit to putting your initial premium into an annuity, it’s good to know what other costs of an annuity are involved.
Does your annuity come with benefits that have additional costs? Does the base contract have any features that will cost you in some way? How much are you paying for the specific benefits that are provided with your particular annuity contract?
Understanding your options, and their pros and cons, can help you make a well-informed decision. Here, we will discuss the different fees and charges that are assessed by life insurance carriers when they issue these contracts.
With inflation on the rise, many people in retirement are concerned about maintaining their lifestyle. How can they keep up with the rising cost of living while making sure they don’t run out of money? One option that can help with inflation is with an annuity.
Inflation can be a major problem for retirees, as the cost of living goes up while their income stays the same. Annuities can help protect against inflation by providing a set, unchanging, minimum income that can give you more flexibility with the rest of your money to counter changes in the cost of living. Some annuities also have benefits that pay increasing income over time.
In this article, we take a look at how annuities can help offset the effects of inflation, which specific types of annuities might be worth exploring for this, and how to choose the right annuity for your needs.
Annuities are a great solution for guaranteed lifetime income and other contractual guarantees, but you want the right one for your situation. How do you navigate an annuity market with thousands of annuity products – and sometimes inferior choices, at that?
It starts with finding the right annuity expert advice – or in other words, professional guidance for your situation to locate the best-fitting annuity just for you. In this article, we will go over different things to keep in mind as you search for expert annuity advice that is right for your circumstances.
Annuities provide tax-deferred growth and pay guaranteed income during retirement. If you own an annuity, then it’s good to know how to pay taxes on your withdrawals.
Of course, your annuity carrier will send you a statement at the end of the year showing how much you need to report as taxable income. Nevertheless, knowing what to expect can save you from an unpleasant surprise when you file your tax return. That is especially the case for non-qualified annuities, in which your funds aren’t subject to required minimum distributions. For that reason, tax hits on your non-qualified annuity withdrawals may be a little less familiar territory.
This article on annuities and taxes is a great starting point for understanding the fundamentals of how annuities are treated under different parts of tax law. In this article, we will focus on more on a breakdown of the tax rules for non-qualified annuity withdrawals.
There is one little-known rule that affects you if you own more than one non-qualified annuity, and that is called the “aggregation tax rule.” Let’s get more into that in a little bit.
An individual retirement annuity is a retirement savings vehicle issued by life insurance companies. The individual retirement annuity can come in fixed or variable flavors. Similar to traditional and Roth IRAs, it works much like any individual retirement account (IRA) and is subject to contribution limits.
The retirement annuity offers a steady income stream to its owners, and it can have higher fees than IRAs. You can check with your financial professional for more details on that. The retirement annuity, like an IRA, is available in both traditional and Roth versions.
Therefore, the annuity owner can take the upfront contribution deduction available to the traditional account. Or they can choose to receive tax-free income at retirement. With the private pension rapidly disappearing, creating your own pension-style payment stream may be a good idea for you.
A bonus annuity is an annuity product that offers either an upfront bonus on premium or a first-year bonus on the interest rate. The premium bonuses are usually associated with fixed index annuities, while the interest rate bonus usually comes with a traditional fixed annuity. Bonuses are even attached to variable annuities on occasion.
Life insurance companies offer the bonus as an incentive to choose that annuity. One of the complexities of annuity bonuses is that, while they usually get credited on day 1, they actually vest over the contract’s life.
It’s good to know that generally speaking, the growth potential of a bonus annuity will be less than that of a non-bonus annuity. This is one trade-off for the annuity bonus.
Here’s a rundown of how bonus annuities work. This is a good starting point of what to look out for if you are considering a bonus annuity for your financial goals.
Annuities are a major staple for retirement planning in the financial products marketplace today. Their guarantees of principal protection and lifetime income make them attractive to many people, especially in the aftermath of the pandemic.
Nevertheless, some financial advisors and retirement savers just don’t like annuities, and there are a variety of reasons for why. Annuities have limits, just like any other financial product, and you should understand what you will get with an annuity before signing on the dotted line. Here’s a quick rundown of some drawbacks of annuities – and also other places in which they come out strong.
Have annuities ever popped up on your retirement-planning radar? You might have come across some annuity contracts with a Market Value Adjustment feature. Several fixed index annuities and multi-year guarantee annuities (MYGAs) include this factor in their contracts.
A market value adjustment (MVA) simply refers to the ability of an insurance carrier to offer you higher rates by protecting itself against bond market declines. When an annuity has a market value adjustment in its contract, it’s called a market value adjusted annuity (or MVA annuity for short).
Normally the insurance company holds the interest-rate risk when you buy a fixed annuity. But an MVA annuity gives you the chance to earn a higher rate in exchange for sharing in some of that risk with your insurer.
After all, bond values are sensitive to interest rate movements. So one way to think of this is as a “safeguard” for the insurance carrier against bond market losses.
If an MVA annuity happens to fall into your retirement purview, here’s a helpful look at what it might involve. Read More
The idea of dependable, ongoing lifetime payments in retirement is appealing to many people. For over two thousand years, annuities have been a time-tested source of guaranteed income across continents, cultures, and walks of life.
Even now, the need for guaranteed lifetime income is still strong in the face of ever-changing markets, meager interest rates, and other economic factors often beyond anyone’s control.
Of course, there are some ways to get guaranteed retirement income beyond annuities. You have a number of vehicles at your disposal:
- Bond ladders,
- Treasury securities,
- Defined-pension payouts,
- Reverse mortgages, and
- Other certain fixed-interest investments
The Guaranteed Income Question
The million-dollar question is whether these guaranteed instruments can offer you the same level of confidence as annuities can.
Yes, decisions on what to include inside your income strategy always depend on your personal situation. But annuities themselves can pay you a guaranteed income for life in ways that others can’t.
If you want to maximize your retirement income, then it’s good to know how mortality credits can affect how much lifetime income you receive from an annuity. Insurance companies use mortality credits in their calculations of income payments to their annuity contract holders.
Leveraging mortality credits could make a big deal in just how much income you receive throughout retirement. Moreover, this income stream can let you keep up your current lifestyle in retirement with a predictable, ongoing flow of money to spend each month.
Here’s a look at how mortality credits drive annuity payments – and how these can play to your advantage for a financially comfortable retirement.