Baby boomers are turning their attention from the accumulation phase of their asset gathering to the distribution phase as they enter retirement. Annuity strategies can be valuable in helping clients reach their accumulation and distribution goals.
Annuities fall into these classes:
- Single premium immediate annuities: Client purchases a lifetime stream of income in exchange for a lump sum of money.
- Fixed annuities: Client invests a sum of money for a period of years and receives a fixed interest rate from the insurance company. At set intervals, the product renews at a new rate.
- Variable annuities: Client invests money either in a lump sum or at periodic intervals. The money is invested inside the product in a separate account. The separate account has many portfolios from which the client may choose, with the help of his or her financial advisor. How the client allocates the investment among cash, income or equity options is based on the client’s risk tolerance and investment objectives.
- Fixed and variable annuities: Client investment is tax-deferred until the money is withdrawn from the contract. Annuities are taxed on a “last in, first out” basis, meaning that withdrawals are income-taxable until the cost basis in the account is reached.
Variable annuities have guarantees relative to death benefits and living benefits:
- For a fee, the client can purchase a rider that will guarantee a certain death benefit to the client’s beneficiaries. The benefit can be based on a guaranteed increase on the account value or the highest account value on a periodic basis.
- For a fee, the client can purchase a rider that guarantees the client an income stream from the annuity without annuitizing the contract. These riders can be based on a guaranteed minimum income benefit or a guaranteed withdrawal benefit.
Annuity contracts can be complicated. Please consult with your Peak Financial advisor to determine which type of annuity is best for your individual needs.
Investors should carefully consider the investment objectives, risks, fees and expenses before making any investment decision. When considering an investment with a variable annuity please refer to the prospectus for required disclosures and other important information. A prospectus can be obtained from your Peak Financial advisor and should be read carefully before investing.
Variable annuities are suitable for long-term investing and may be subject to an early withdrawal penalty. Withdrawals are subject to a possible 10% federal tax penalty if taken before age 59 ½. A variable annuity is subject to market fluctuations so that, when withdrawn or annuitized, it may be worth more or less than its original value. All product guarantees are based on the claims-paying ability and financial strength of the issuing insurance company. There are fees and expenses associated with variable annuities.