Investment Issues

If you retire at age 65, how will you fund the next stage of your life? Annuities offer a flexible way to fund lengthy retirements.

For Long-Term Goals
Issued by a life insurance company, an annuity contract allows you to accumulate money for long-term goals. Unlike IRAs and employer-sponsored retirement plans, there are no limits on the amount you can contribute to an annuity, although amounts above a certain threshold require insurance company approval. It can be an excellent supplemental retirement savings vehicle and offers a range of benefits including:

• Tax deferral. Instead of paying taxes on your earnings each year, they grow tax-deferred until withdrawal. (Ordinary income taxes on accrued earnings are due upon withdrawal. If you make withdrawals before age 59.5, you may also incur a 10 percent federal early withdrawal penalty. Many annuities also charge surrender fees for withdrawals during the early years of the contract.)
  
• Choice of accumulation alternatives. You can choose from two basic types of annuities: fixed and variable. The main advantages of a fixed annuity are the protection of principal and security against market fluctuations. You generally receive a guaranteed minimum rate of return for a specific period of time (guarantees are based on the claims-paying ability of the issuing company). With a variable annuity, you can seek potential opportunities in the investment markets and obtain professional money management. You choose from a range of portfolios designed specifically for annuities; typically, these portfolios are comprised of stocks, bonds, or money market securities. Your returns are based on the performance of the underlying portfolios.
  
• Flexible payout options. When you're ready to withdraw money, select the payout option that best suits your situation and needs. You may choose a single lump sum, periodic payments for a length of time, or payments guaranteed to last for your lifetime.