How an Annuity Fits Into Your Retirement Plan


How an Annuity Fits Into Your Retirement Plan

Retirement planning is a crucial step to a successful retirement. Unfortunately, it can be difficult to navigate the many products available. Work with Jacobs Financial to see how annuities for retirement can help you take the next step in your plan. Whether just around the corner or decades away, it’s never too early or late to prepare for the retirement you and your family deserve.

Understanding a Fixed Annuity

Life insurance companies offer a contract called a fixed annuity. This product starts with a lump sum and can grow in a number of ways. The returns also vary depending on the product you choose, so it’s important to compare your options carefully.

Basically, a fixed annuity acts as a certificate of deposit. Your initial deposit guarantees either a set income or a fixed interest rate in tax-deferred income. The guaranteed return can be front-loaded or rear loaded. A front-loaded return pays the highest interest rate at the initial year of payout, then slowly reduces the interest rate in the following years. A rear-loaded annuity gradually increases the interest rate through the term.

Terms vary as well, typically lasting between five and 15 years. Annuities are a long-term investment option without the risk involved in other types of investment. They are a great supplement to other, more risky investment options in your portfolio.

As the interest accumulates in your fixed annuity, it grows tax-free until you withdraw it. Then you must pay income tax on your withdrawal. Use IRA money to purchase a deferred fixed annuity, as long as you follow the tax rules for IRA contribution limits and required minimum distributions.

Withdrawing from Your Fixed Annuities

Most deferred fixed annuities have a penalty tax if any interest is withdrawn before you reach the age of 59 1/2. The first income to come out of your fixed annuity will be accumulated interest, then principal. Principal withdrawals aren’t taxed. Check your contract to see what percentage of the contract value you can take out each year without paying a surrender charge. In most cases, this is 10%.

Annuity Features to Consider

There are several additional benefits you can include in your annuity to alter your investment. For example, an income rider benefit offers a guaranteed income. This offers you a guaranteed minimum income to be paid out 10 or more years in the future.

Another option is a fixed immediate annuity. These products provide a specific monthly amount for 10 or more years, sometimes up to 20 years. The income can start immediately, so it’s a great way to manage your savings and enjoy a set period of steady income that’s adjusted for inflation.

Fixed immediate annuities are an option for risk-averse savings. Setting aside a lump sum and enjoying a monthly, stable income can be a convenient option for your retirement years. Review these annuities if you are concerned with the future and wish to enjoy a safer investment option in addition to your entire investment portfolio.

Reach Your Retirement Goals with Jacobs Financial

Manage your finances and prepare for a successful retirement with Jacobs Financial. Explore retirement annuity plans with our team to see what you can do to plan ahead and enjoy a successful retirement. Schedule a meeting today to weigh your retirement options and see how an annuity fits into your personalized retirement plan.

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