Annuities Have Been Described Unfairly
Many people have a negative opinion of annuities. This may be due to financial advisors, who don’t have access to effective annuities, downplaying their importance. People forget that a pension, which everyone would like to have, is really just a type of annuity. Social Security is also a type of annuity.
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While there are many types of annuities, for a wide variety of needs, the basics of a retirement income annuity is a promise by an insurance company that the investor in an annuity will receive a lifetime income (or a joint lifetime income if married) regardless of how long the investor lives. An allocation to an annuity can effectively reduce the risk of a market-based investment portfolio.
An Annuity Can Shelter Income
The earnings in an annuity grow tax deferred. This makes an annuity a potential option if non-qualified investments are generating unneeded income. While the tax consequences to access the income are not a good as qualified dividends or long-term capital gains, an annuity can be a good alternative to a bond portfolio or high yield money market. Interest income is taxed the same as annuity gains, but you are in control of when the income is realized, rather that income being taxed each year.
Does an Annuity Make Sense For You?
Maybe – or maybe not. That question can only be answered when you know what is available to fill a need in your retirement income plan. To explore that possibility, you can request to speak to a Tax Acuity Advisor™ on our contact page.