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Building your savings is only one avenue to pursue when structuring your retirement plan. Many individuals are concerned how they will convert their savings account into a monthly income during retirement. Annuities are a financial vehicle using your long term savings. Persons are able to save and grow their money before retirement and then change that savings into a monthly income that will provide for you and your family for the rest of your life.
Annuities can be setup in several different ways including; deferred annuities, variable annuities and fixed annuities.

Deferred Annuities

  • Allows for accumulating savings with the intention of ultimately distributing the savings in monthly payments (immediate annuity) or a lump sum
  • Tax-deferred compounding of money allows more money to be accumulated (higher returns)
  • Taxed upon withdrawal

Variable Annuities

  • Allows money to be invested in insurance company sub accounts similar to a tax deferred retirement plan but with the ability to invest larger amounts with the same tax advantages as a 401K
  • Taxed upon withdrawal

Fixed Annuities

  • Offer a guaranteed rate of return over the life of the contract
  • Usually do not offer a fixed rate of return, instead they offer  guaranteed minimum and an introductory rate

Taxation is also another plus for the individual when utilizing an annuity. In the U.S. Tax Code, the growth of an annuity value during the accumulation phase is tax-deferred, that is not subject to current tax, for annuities owned by individuals. Any withdrawals before the individual is 59 and a half are taxed at a 10% penalty. Contact your accountant for detailed tax guidelines.