First introduced in America back in 1759, the annuity concept of making a one-time payment in exchange for a lifetime of payments is as old as the concept of life insurance — only the annuity was developed to provide payments while a person is still alive.

Retirees today are finding that retirement annuities can play an important role in their retirement income strategies. When considering an annuity, you should choose one that is suitable for your personal financial situation to help ensure that it works in concert with the rest of your overall retirement income strategy. When utilized correctly, an annuity can be a very effective retirement income vehicle. If you have any questions, please consult our financial planning videos.

Before we go much further, it’s important to have a basic understanding of just what an annuity is. Put simply, an annuity is a contract you purchase from an insurance company. In exchange for the premium you pay, you receive certain fixed and/or variable interest crediting options that compound interest-tax-deferred until withdrawn.

There are an array of annuity contracts on the market today, and each one will be examined more closely later in this manual. The options include variable, immediate, fixed, and fixed index annuities. These choices can allow you to match very specific individual needs with a suitable product. Within each contract, you have the flexibility to select from a range of payout terms and death benefits, and you may have the possibility of purchasing optional riders for additional benefits. An annuity purchase can be strategically positioned within your overall retirement savings strategy for any number of personal objectives, such as income for your spouse should you die, or a death benefit for your children or help addressing inflation concerns. Coverage is available for two people within one contract, so you don’t have to purchase a separate contract for your spouse. All annuity product guarantees and protection benefits are backed by the financial strength and claims-paying ability of the issuing insurance company. Annuities are designed to meet long-term needs for retirement income. Interest on annuities is earned on a tax-deferred basis, which means no taxes are paid on interest credited until payments are received or withdrawals are taken. However, withdrawals will reduce the contract value and the value of any protection benefits. Withdrawals taken within the contract surrender charge schedule will be subject to a surrender charge. All withdrawals are subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10 percent federal additional tax.

Contact us to set up a time to meet with our experienced financial planner. If you would like more information, many of our clients have written in to leave a testimonial about Matt Nelson and ILF. You can always listen in to Matt on Income For Life Radio for the latest on everything from immediate annuities to variable annuities.