you are like most people planning for retirement, you want secure income
once you are no longer working. Fixed and variable-rate annuities to
maintain your standard of living in the face of inflation are one
The Annuity Misconception
that provide a steady income stream, or a “payout,” are similar to
life insurance policies. With life insurance, you pay regular premiums to
an insurer that makes a lump-sum payment upon your death. However, with an
annuity, the insurer converts a lump sum of cash into payments.
you decide how to invest your contribution among a variety of mutual
fund-like portfolios called “subaccounts.” If your subaccount
portfolio generates a return higher than the interest rate, your variable
annuity payments increase. If your portfolio earns less than the rate,
your payments drop — and this can make budgeting in retirement tricky.
assured, however, that annuities generally offer a tax benefit when you
invest taxable dollars: A portion of each payment you receive is
considered a return of your capital and therefore is not taxed.
Combining the Best of Both
• Shop around for low fees.
• Choose an annuity that offers a
wide variety of investment options (“sub-accounts”).
• Consider investing the same
amount of money at regular interval.
• Keep your investments
• Spread your money around to
different investment types.
Use annuities to pass money along to heirs quickly.
All Your Eggs in One Basket
are just one tool you can use as part of your long-term financial plan.
Remember not to put all your money in annuities. Make sure you have
emergency reserves and other accessible assets to draw upon in case you
have an immediate need.
annuities for retirement and estate planning can be quite complicated. A
qualified financial advisor can help you sort through the products,
potential risks and timing and determine what strategy fits best within
your personal economy.
Ginine Castillo is a Financial Advisor at American Express Financial Advisors Inc. She can be reached at 952-1188 or by email: firstname.lastname@example.org. The information provided in this article is for informational purposes only. It is intended to be generic in nature and should not be applied or relied upon in any particular situation without the advice of your tax, legal and/or your financial advisor. The views expressed may not be suitable for every situation.