As you get closer and closer to retirement age, the questions and uncertainty about how you will be able to live on comfortably become increasingly significant. Life insurance is a really good idea for a 30 year old with wife and young children, but priorities change with age and it may not be the best choice for a 60 or 70 year old. As you reach the final days of employment, your greatest investment is in yourself and your standard of living until the day you pass. But when is it right to start looking into annuities? What type of annuity is right for you? Are annuities a better option than alternative retirement plans? These are all tough questions that require dedicated and detailed investigation but questions that we answer for many individuals on a daily basis. It would be our privilege to do the same for you. Our licensed and knowledgeable staff will consult you on the necessity of an annuity in your particular case and direct you to the best options available in the market today. With our vast network of annuity carriers, you can be certain that we will make sure to find the most complementary annuity policy for your particular case. And if an annuity is not for you, we will assist you in finding the appropriate alternative to ensure that your life as a retiree is a comfortable one. Contact us today and speak to a representative to discuss your situation and the options available to you.


Annuities Explained: Life Insurance vs. Annuities

You will often hear that an annuity is simply the opposite of life insurance. But what does this mean? While both annuity and life insurance are insurance products, the primary difference between the two is reflected in when the payment is made. As opposed to a life insurance policy that pays the value of the policy at the time of death, an annuity pays a set amount of money (monthly, quarterly or annually) to help you meet future financial needs. In other words, an annuity is an investment security that you pay money into for a set period of time and once you reach a certain date, you start to receive payments for a set period of time (often for the rest of your life). For those who are not big on taking risks, annuities work well because as opposed to stocks, bonds, mutual funds and other common investment options, annuities are guaranteed. Furthermore, contingent upon the type of annuity, the amount of time you pay into an annuity can vary anywhere from a onetime lump sum payment to monthly smaller payments over a long period of time. You can find more information on the different types of annuities by reading further below.


Two basic types of annuities

  • Deferred Annuity: As opposed to an immediate annuity, a deferred annuity allows the annuitant to make smaller payments into the annuity over a long period of time. The term “defer” relates to fact that you are deferring the time at which you begin to receive income. Once that period of time is over (typically when you are ready to retire) the insurance company will start making payments that will help you with your retirement. Furthermore, a deferred annuity can often add more flexibility by allowing you to build your deferred annuity account with a lump sum, payments over time or both. With a deferred annuity, your payments gradually build account value over time and are converted to income in the future. You can continue to have access to your investment until you convert your accumulated assets to a revenue stream. In other words, a deferred annuity may allow you to make withdrawals or surrender the contract entirely. Deferred annuities are especially appealing if you want to put away more funds for retirement that you can with a plan your employer offers you. Moreover, if you are not earning income, a deferred annuity is one way for your investments to grow tax deferred. As opposed to employer sponsored plans and IRA’s, there are no federally imposed annual limits to the amount of money you can contribute to your deferred annuity which allows you to contribute at your own pace. As opposed to immediate annuities that are often bought by individuals close to retirement, deferred annuities are usually a better option for individuals who are starting to plan for their retirement at a younger age. In essence, the question to ask is whether you want income now or income later?

  • Immediate Annuity: An immediate annuity can be thought of as creating your own pension. You pay a lump sum to an insurance company and in return, the insurance company promises to pay you a fixed dollar amount for as long as you live. With an immediate annuity, you begin to receive payments soon after you make your initial lump sum payment. Payments are generally received on a monthly basis but can also be arranged so that they are received on a quarterly, semi-annual or annual basis. Furthermore, payments received will depend on a number of factors including the amount invested, time frame the owner of the contract wants to receive the money and rate of return on the account (see fixed vs. variable below). One of the many benefits of immediate annuities revolves around the delay in payment of income taxes and increase in monthly income. When an employee withdraws funds from an IRA or 401K, income taxes are due on the full balance available. This additional income may move you into a higher tax bracket and reduce the amount of money available for investing. However, by rolling these funds into an immediate annuity, the only tax you pay is the tax due on the payments received. Therefore, immediate annuities can often be a wise tax savings strategy. Immediate annuities are typically a better option for someone who is older in age and close to retirement. In essence they are the opposite of a life insurance policy in that instead of paying regular premiums to the insurance company in return for a lump sum at the time of death, you pay a lump sum to the insurance company in return for regular income payment until you die.


Fixed vs. Variable: What’s the difference?

Immediate and Deferred annuities can be either fixed or variable. The differences, advantages and disadvantages between these two subcategories are outlined below

  • Fixed Annuities: Fixed annuities are essentially like CD investments except they are issued by insurance companies. Like CD’s, they pay guaranteed rates of interest that are higher than bank CD’s in many cases. This option is popular for retirees who want a guaranteed income stream to supplement other retirement incomes due to its convenience and predictability of a set payout. The fact that they pay guaranteed rates of interest is a major benefit because the annuitant does not have to worry about the ups and downs of the stock market. Another benefit is that they can be set up with relatively small investment minimums that can be as low as $1,000. Furthermore, the interest that fixed annuities pay are not subject to taxes until you pull out funds. With all of the benefits offered, fixed annuities also have some disadvantages. For one, the interest rates are often fixed for a limited period and then drop afterwards. If you do not like the new terms and rates and want to withdraw your money early, you may be subject to surcharges that cut into your returns. Also, if you decide on receiving fixed lifetime payments, the payments do not keep pace with inflation and consequentially the value of money received may decline over time if inflation occurs.

  • Variable Annuities: While fixed annuities provide guaranteed payouts, variable annuities allow you to choose from a variety of investments and then pay you a level of income contingent upon the performance of the investments that you have chosen. In theory, they are designed to pump up your savings by offering you a choice for long term capital growth. Most typical variable annuities will provide investment options of at least 10 to 20 different stocks, bonds, or mutual fund like portfolios commonly referred to as sub accounts. Because the growth potential with variable annuities is much larger, it is more likely that they outpace inflation. As with almost everything in life, this added flexibility can be a disadvantage as well. If the investments that you choose for annuity perform poorly, the value of your annuity will also decline resulting in a lower payout to you. Variable annuities require you to do more work because you are personally in charge of choosing the investments.


General Advantages of Annuities

The biggest advantage is that they allow you to stock away larger amounts of funds than other employer retirement plans while deferring tax payments.

Unlike other tax-deferred retirement accounts like 401K’s and IRA’s, there is no limit to annual contributions. This allows you to put away more money for retirement, which can be especially useful if you are behind and need to catch up.

As opposed to other taxable investments, all of the funds invested compound over the years without being subject to taxes. Taxes are only applied when you withdraw money.

When you are ready to cash out, you can choose between getting a lump sum of money and receiving guaranteed payments for specific lengths of time.


Some Questions to ask when looking to purchase an annuity

  • How much will my monthly payments be if I purchase any insurance other than immediate annuities?

  • What are the implications if I pass away during my annuity term?

  • What company is providing the annuity? What is their reputation? Financial Stability?


Retirement Planning

Our office can also assist you with retirement planning. Please call us to discuss your retirement with a registered representative.


Other information

  • With life insurance policies, benefits are not taxed as income to the beneficiary and premiums are paid with after-tax dollars. On the contrary, annuities have tax implications when the funds are paid out to the annuitant and taxation technique varies between immediate and deferred plans.

  • There are other types of annuities available as well such as Equity-indexed annuities and Longevity annuities. Our office works with providers to offer these types of annuities as well. Please contact us for more information.

  • Please visit our insurance glossary tab for a full list of insurance terms and definitions.

  • There are many discounts available to help reduce your premium. Please visit our learning insurance discounts page to find out more information on how to maximize your savings.


This page contains only a general description of coverages and is not a contract. Details of coverage or limits may vary in some states and by carrier. All coverages are subject to the terms, provisions, exclusions, and conditions in the policy itself and in any endorsements.

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