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Individuals are now living longer than ever before and as a result are concerned about outliving their retirement income. Because of changes to employer-provided pension plans, potential income tax increases, uncertain markets, and Social Security worries, retirees are finding they have to take responsibility for creating their own retirement income plan.
To find out how Amerity Financial can help you receive guaranteed growth on the savings you've set aside for retirement income, request a free "Amerity Financial Safe Retirement Solutions Made Easy" information packet.
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With Amerity Financial Retirement Solutions as the foundation for your retirement you’ll have peace of mind knowing you will have results you can count on. Will Rogers once said: “I’m more concerned with the return of my money than the return on my money”. We take one step further and believe it’s equally important to know that not only will your money be there when you need it but that you can count on performance to meet your future retirement needs.
Our mission is to work with you one on one to determine where Amerity Financial Retirement Solutions can play a part in your retirement lasting your lifetime. We have learned from years of experience working with retirees what is most important to them concerning their retirement assets.
No single product meets all of an individuals retirements needs, So…
No single product meets all of an individuals retirement needs. Consumers should diversify with a combination of products that may include annuities, mutual funds, stocks and bonds. When it comes to investing safely for retirement Suze Orman says ”Money needed for retirement income should be out of the market 10 years before you retire.” At Amerity Financial we agree.
The closer a person gets to retirement a larger percent of their saving should go toward safe investments.
Investment Options: Annuities
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What is an annuity?
An annuity is a contract from an insurer that you can use to grow money for and during your retirement on a tax-deferred basis. Annuities are a popular choice for investors who want to receive a steady income stream in retirement. The income you receive from an annuity can be doled out monthly, quarterly, annually or even in a lump sum payment.
Here's how an annuity works:
You make an investment in the annuity which grows tax deferred until you need the money, and then when you need your funds you can opt to take a lump sum or to receive payments in a manner that best suits your needs.The size of your payments are determined by a variety of factors, including the length of your payment period. You can opt to receive payments for the rest of your life, or for a set number of years. How much you receive depends on whether you opt for a guaranteed payout or a payout stream determined by the performance of your annuity's underlying investments.
What are the different types?
There are two basic types of annuities: deferred and immediate. With a deferred annuity, your money is invested for a period of time until you are ready to begin taking withdrawals, typically in retirement. If you opt for an immediate annuity you begin to receive payments soon after you make your initial investment. For example, you might consider purchasing an immediate annuity as you approach retirement age. The deferred annuity accumulates money while the immediate annuity pays out. Deferred annuities can also be converted into immediate annuities when the owner wants to start collecting payments. Within these two categories, annuities can also be either fixed or variable depending on whether the payout is a fixed sum, tied to the performance of the overall market or group of investments, or a combination of the two.
Are there tax benefits?
Yes. Money that you invest in an annuity grows tax-deferred. When you eventually make withdrawals, the amount you contributed to the annuity is not taxed, but your earnings are taxed at your regular income tax rate.
Are there advantages to annuities?
Yes. One of the biggest advantages annuities offer is that they allow you to sock away a larger amount of cash and defer paying taxes. And like other tax-deferred retirement accounts such as 401(k)s and IRAs, there is no annual contribution limit for an annuity. That allows you to put away more money for retirement, and is particularly useful for those that are closest to retirement age and need to catch up. ll the money you invest compounds year after year without any tax bill from Uncle Sam. That ability to keep every dollar invested working for you can be a big advantage over taxable investments. hen you cash out, you can choose to take a lump-sum payment from your annuity, but many retirees prefer to set up guaranteed payments for a specific length of time or the rest of your life, providing a steady stream of income. The annuity serves as a complement to other retirement income sources, such as Social Security and pension plans.
Are there disadvantages?
Not all annuities are created equal. Variable annuities may contain high fees that are paid year after year. Many annuities sound like great moneymakers, but there are often hidden fees that can cut into any profits and any pay out, so buyer beware. High Annual Fees If you invest in a variable annuity you'll encounter high annual expenses. You will have an annual insurance charge that can run 1.25% or more; annual investment management fees, which range anywhere from 0.5% to more than 2%; and fees for various insurance riders, which can add another 0.6% or more all totaling 3 -5% of your accumulation value. Surrender Charges You may likely face a surrender charge for pulling money out of an annuity within the first several years after you buy it. The surrender charge typically runs about 7% of your account value if you leave after one year, and the fee generally declines by one percentage point a year until it gets to zero after year seven or eight.
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CASE STUDY: How Lee and Eileen use Amerity Financial Retirement Solutions:
This is Lee and Eileen. At 65 and 70 years old they have been retired for a few years now. One of Lee’s long-term objectives is to provide a comfortable and financially independent retirement for himself and his wife.
Since retiring, Lee has become very concerned about the safety of his money. He does not want to lose what he worked so hard to create. Also, Lee and his wife have grown accustom to a certain style of living and know that they will need to supplement their retirement income to keep it. Lee and his wife want a guaranteed stream of income that neither will be able to outlive.
Lee could purchase a fixed indexed annuity for him and his wife in joint ownership. An indexed annuity is a fixed annuity that has its interest credits linked to an index that will lock in interest earnings up to a stated cap every year that there is a gain in the index. Lee’s fixed indexed annuity would not participate in any negative index returns, protecting his annuity from any decrease in value (except for withdrawals and elective rider fees).
Using $100,000 from his accumulated retirement assets, Lee and his wife decide to purchase a fixed Indexed Annuity. To improve their flexibility in managing the accumulation and distribution phases of his annuity he decides when he takes income and for how long, all the while maintaining control of his fixed indexed annuity.
The Accumulation Phase
By adding the Lifetime Income Rider to their fixed index annuity Lee and his wife have given themselves extraordinary flexibility. They decide when and how they receive supplemental income. The longer Lee and his wife wait to receive Lifetime Income Payments, the more their total income payments will grow. Through the lifetime Income rider, Lee is guaranteed 7% compounded growth factor on the income benefit value. At that rate the income benefit value of his annuity will double in 10 years if he makes no withdrawals from his fixed indexed annuity.
The Distribution Phase
As joint annuitants, Lee and his wife could begin receiving payments of 5% in year 1, about $5,000. But if they wait 10 years for the value to grow, their maximum annual withdrawal percentage will also be higher. After ten years, it would be 6%, or about $12,000 of guaranteed annual income for life.
*This hypothetical example assumes no Withdrawals, no additional Premium, and no restarts.
The above scenario, proposed solution, accumulation results and distribution results are a hypothetical example used for illustrative purposes only. Your Amerity Financial Professional can provide you with a projected income estimate based on your age and amount of Premium. Amerity Financial does not authorize its financial professionals, employees or representatives to give legal, tax or accounting advice. The information contained herein is our understanding of the current laws as they relate to annuities. These laws are subject to change in the future. Please consult your personal advisor for any tax, legal or accounting advice to determine if a single premium immediate annuity or a deferred annuity is right for you.