What is an Annuity?

Annuities are becoming more and more popular in today’s volatile market.  Many people are looking to lock in gains they have made in other investments and transition to safety and guarantees.

An annuity is a contract between you and an insurance company that allows your earnings to grow and compound tax-deferred.  This is a powerful benefit that you can use to help accumulate wealth for retirement or other long-term financial goals.  The word annuity literally means “annual payments”.  When you buy an annuity, the insurance company agrees to pay you an income for a specified period of time.  Whether these payments start right away, or at some future date, determines what type of annuity you have; either deferred or immediate.

The Power of Tax Deferral

The ability to shelter your earnings from the impact of taxes is one of the most powerful tools available for helping you build and preserve wealth for retirement or other long-term goals.  Without the continuous drag of taxes, your money grows faster.  Faster growth means a larger nest egg.  These are the principles that make it work.  First, your principle earns interest each year.  Then, your accumulating interest earns interest.  Finally, the money you would have ordinarily paid to the IRS in taxes (and possibly to state and/or local agencies) remains in your annuity to earn even more interest for you.  Over time, the additional interest earnings on these tax savings can really add up.  Depending on your tax-bracket, tax deferral can mean as much as 30% to 40% faster growth of your money compared to a taxable account paying the same rate.

Is an Annuity a Fit for You?

Annuities offer competitive returns and safety of principal with options for guaranteed retirement income for your lifetime.  There are many different types of annuities, some good and some that we do not recommend.  We help you determine if an annuity is a fit for you and if so, what type would best suit your needs.