• Mark Dierolf

How annuities can work for you

Updated: 3 days ago

Annuities are a financial planning tool used for retirement and estate planning. Annuities can offer you:

  1. Regular payments of interest and principal;

  2. Tax-deferred growth of savings;

  3. A benefit for your heirs; or

  4. A lifetime income benefit for you.

Social Security and pension benefit payments are examples of income annuities. Lottery winning payments are too. But annuities are a specialty of life insurance companies, often issued for a 3-year or longer term.

Annuities come in different flavors.

Income annuities offer:

  1. Regular payments of over a fixed period of time;

  2. A benefit of more than you paid in; or

  3. Guaranteed income for life.

Deferred annuities offer:

  1. Growth of savings;

  2. Tax-deferral of interest; or

  3. The benefits of an income annuity.

Annuity withdrawals work differently than income payments: interest is withdrawn before principal, and there may be a tax penalty for withdrawals before age 60.

Deferred annuities are popular. Ask about these things before you buy:

  • How long is the term (surrender charge period) and does it renew?

If the annuity has a Lifetime Income Guaranteed Withdrawal benefit, the benefit is lost when the annuity is cashed-out.

  • Are there annual charges for benefits or asset management?

Charges for benefits or asset management are common, but there are good products without them.

  • Are my savings at risk of loss from a market downturn?

Variable annuities are for savers with investment experience because your savings are at risk from a market downturn. They are sold by stock brokers, often with a Lifetime Income Guaranteed Withdrawal benefit.

Fixed annuities are the way to go when no worries is the goal. They offer:

  1. Safety of savings from a market downturn;

  2. The safety of the insurer's claims-paying ability; and

  3. Earnings tied to market growth or like a bank CD.

  • Can a benefit value be taken out as a lump sum?

A Lifetime Income Guaranteed Withdrawal benefit competes with an income annuity, limiting annual withdrawals over the lifetime of the insured. The benefit dollar amount is not the cash value. Income annuities often pay better.

Some annuities offer an enhanced benefit for heirs, often payments over a period of 5 or more years.

Savers love annuities when they understand how they work.

Learn more about annuities by calling Mark Dierolf @ (831) 753-0507.

Services offered are the review, use, and maintenance of fixed-rate annuities.


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