Annuities are contracts with insurance companies that often are used as tax-deferred retirement savings vehicles. Deposits are made into annuity accounts on a regular basis, or as a single deposit. No taxes are paid on the build up of dollars until the money is withdrawn at retirement age (59-1/2), when you are likely to be in a lower income tax bracket.
- A fixed annuity assures you that your money will earn a specified interest rate guaranteed by the insurance company. Thus, the insurance company bears all of the risk and pays you the guaranteed amount of annual interest regardless of market performance.
If you have a shorter time period before retirement, you may prefer the guaranteed return of a fixed annuity; if you have many years until retirement, you may prefer the longer-term benefits possible with a variable annuity. Or, you may want to consider balancing the risk you incur by splitting your contributions between both types of annuities.
Just remember: Because the savings in either type of annuity are tax-deferred, there is a 10% penalty for withdrawal of funds before age 59-1/2, plus taxes owed on the earnings at that time.
Withdrawal flexibility at retirement
There are many payout options available on an annuity. You can arrange for a lump sum or partial withdrawal of funds, or can develop a plan that prevents you from “outliving” your payments. It is also possible to have provisions that provide a guaranteed death benefit either as part of the basic contract, or as a rider added onto it.
Annuities provide an additional retirement savings option that is very attractive for many people. To learn if they are appropriate for you and your family, consult Brooks financial services department for a personal consultation.
Fixed annuities may not be for everyone. There are fees and expenses associated with fixed annuities that may not be apparent with other fixed income investments. You should make sure you fully understand the annuity before purchasing the product.
Variable annuities are long-term investment vehicles designed for retirement purposes and are subject to market fluctuation, investment risk and possible loss of principal. Variable annuities are sold by prospectus only, which describes risks, fees and surrender charges that may apply. Withdrawals of taxable amounts are subject to ordinary income tax and, if made before age 59-1/2, may be subject to a 10% federal income tax penalty. Withdrawals will reduce the living and death benefits and account value.
Annuities are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional.
Be sure to read the prospectus carefully before deciding whether to invest or not.
Guarantees based on the insurance company’s ability to pay and early withdrawal may cause a loss of principal due to withdrawal charges.
Purchasers may experience fees and expenses, including withdrawal charges, market value adjustments, rider premiums, etc. which may affect contract values.
