Annuities Planning & Consulting
One of the most common questions people have is whether their savings will be sufficient when they retire. To supplement their savings, many people invest in an annuity. If you are wondering about your retirement and whether annuities are right for you, Kris Montgomery can provide you with sound guidance when it comes to annuities consulting.
What is an Annuity?
Annuities are long-term insurance products that provide guaranteed income after a period of time. They are attractive for three principal reasons:
- Their earnings grow tax-free until you make withdrawals.
- They provide income payable in regular intervals.
- They include a death benefit payable to your beneficiaries in the event that you die in order to protect your investment.
Careful annuities planning can provide tremendous benefits by paying guaranteed income to fill the gaps left by other sources of income during your retirement.
How Annuities Work
Like any insurance product, annuities require the purchaser to pay premiums for a certain period of time. What makes annuities unique is that they then begin paying dividends to the purchaser once you have finished paying the premiums. Another way to look at it is that annuities have two different states:
- The accumulation phase, where you pay premiums into the annuity. Your premiums can be paid over time or in a lump sum.
- The distribution phase, where you will receive regular payments according to the terms of the contract. These payments can be monthly, quarterly, or annual.
A key step in annuities planning is to consider your future needs and understand what the products both offer and require. At Alpha Crypto Consulting, we offer annuities consulting to help clients understand the various products available and what makes the most sense for them.
The Different Types of Annuities
There is a wide variety of annuity products available, but they all break down into two major categories: (1) deferred annuities and (2) immediate annuities. Our annuities consulting services focus on helping you understand the differences and helping you choose the right product.
As the name implies, deferred annuities pay income to the purchaser at some point in the future. Here are some examples of the different types of deferred annuities available:
- Fixed annuities that offer a fixed rate of interest guaranteed to never be less than an established minimum rate. They can also be annuitized, meaning that they can be converted to guaranteed income payments for a specific period of time or for the remainder of the contract.
- Variable annuities, on the other hand, pay a variable return determined by whatever investment portfolio you choose. They typically include a death benefit as well as the option to annuitize. While they carry more risk than fixed annuities, they also offer the potential for greater returns.
- Structured annuities are a type of variable annuity that is tied to a particular index, but offer protection against unmitigated losses setting a “floor.” These offer the opportunity for growth while minimizing some of the risks associated with traditional variable annuities.
- Income annuities offer a cash flow in monthly or annual payments vs. a lump sum.
Thoughtful annuities planning involves understanding the advantages and disadvantages of each of these products, and then matching which one best meets your future financial needs.
While deferred annuities pay income at some point in the future, immediate annuities pay an income stream right away once a lump-sum principal amount is paid. Immediate annuities offer a variety of income options, including payment to your spouse or other beneficiaries if you die before the entire annuity is paid.
Immediate vs Deferred Annuities
Perhaps the most important step in annuities planning is deciding which annuity product will best serve your needs. Some of the factors you should consider include the following:
- The timing of your first payout
- The period during which you will receive income
- Your tolerance for risk
We offer annuity consulting services that put your interests first, matching your financial needs with the best annuity products available.
The First Payout: Immediate vs. Deferred Annuities
With an immediate annuity, you can begin receiving payments as soon as you pay the principal, typically in a lump sum. Immediate annuities are popular for people who are close to retirement.
Deferred annuities, on the other hand, pay income at some point in the future as determined by the contract. You make payments ahead of time, and your contributions accrue interest tax-free. As a result, payouts tend to be higher than those paid by an immediate annuity. Deferred annuities are often a better option for those who will not be retiring for several years.
Risk: Fixed vs. Variable Annuities
Different annuities present varying levels of risk. Your tolerance for risk will be one of the factors that determines which annuity product will be right for you.
- Fixed annuities are a low-risk option because they offer a specified rate of return and are not invested in the financial markets. As a result, the rate of return does not fluctuate.
- Variable annuities, on the other hand, are investments that will vary according to the portfolio that you are invested in. As a result, there is greater risk, but there is also the potential for greater returns.
Annuity Payout Options
You also should consider how long you want to receive payments as part of your annuities planning.
- Life payouts will continue until you pass away, but payments will not continue for your beneficiary.
- A joint-life payout will provide a lifetime payout for you and your spouse or some other beneficiary.
- Period certain payouts provide payments for a time period specified in the contract such as 5 or 30 years.
- Finally, there are life with period certain payouts that provide payments for your lifetime but will make payments to a beneficiary in the event that you pass away during a specified period. Your beneficiary will receive payments for the remainder of that period.
Annuities and Tax Planning Considerations
You also need to consider the tax implications when annuities planning. As mentioned above, annuities are tax-deferred, which means that any growth will not be taxed. That said, they primarily considered investments for retirement purposes. As a result, you need to keep the following in mind:
- Withdrawals made before age 59 ½ may be subject to a 10% IRS penalty.
- After age 59 ½ , you will have to pay taxes on any money you withdraw.
Are Annuities Only for Retirees?
Annuities planning can be worthwhile for those who are nearing retirement as well as those who are still in their working years. Deferred annuities allow you the opportunity to grow your money without paying income taxes on your annuities. They can also be attractive for the following reasons:
- You can use annuities to roll over a workplace retirement account when you change jobs.
- You can invest in annuities when you have reached your 401(k) or IRA annual contribution limits.
Contact Us to Discuss Whether an Annuity is Right for You
At Alpha Crypto Consulting, we work side-by-side with our clients to help them develop a financial plan that works for them. To discuss how annuities planning can complement your financial plan, call or email us today to start a conversation.