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As more people are concerned about living a long life in retirement, annuities are becoming a solution for long-term planning. An annuity is the savings version of a life insurance product.  All annuities are classified as either Deferred or Immediate.  There are two phases in an annuity, accumulation phase and payout phase. 

The accumulation phase only applies to deferred annuities.  During this time, your contributions gradually build up.  Early withdrawal during the accumulation phase may face a surrender charge.  However, most annuities allow the policy holder to make partial withdrawals within their contract without penalty.  If withdrawing before age 59 ½, you may get a 10% federal income tax penalty as with other tax-deferred accounts.

The payout phase is traditionally referred to as annuitization.  When the owner receives payouts, the annuitization period begins.  There are many options for payouts. 

It is important to understand that annuities can be an excellent tool if you use them properly.  Annuities are not right for everyone.  Unlike IRAs and 401ks, annuities have no limits on contribution.  You can put in as much as you want.  Also, due to lifetime payouts, it is a vehicle of choice for many people to rollover or transfer their 401k and IRA into annuities, so they can get the advantage of the payout phase. 

Want to more information?  Don’t know if annuity is the right product for you?  Contact us for a free consultation.

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