It is no secret that our current Social Security system is in trouble. The percentage of people collecting Social Security is increasing faster then the percentage of people paying into Social Security. Life expectancy is increasing and the average age of our population is getting older. As this inevitable aging trend continues, at some point, the number of people over age 50 will be greater then the number of people under age 50. The fastest growing age group in the world today is the 85 and up population.
Changes must be and will be made to the current Social Security system for our future generations to have any hope of participating. We spend our entire working life paying into Social Security with the intention of taking what we hope is a guaranteed lifetime income when we retire. The future of our Social Security system as we currently know it is doubtful. Clearly, relying solely on Social Security income will most likely leave those unfortunate individuals living at or below poverty levels, throughout their golden years.
Social Security is in reality, a deferred annuity. Simply put, we make deposits into our Social Security account with the intention of taking systematic lifetime income withdrawals at some point in the future.
Annuities have been in existence for well over two hundred years. The very first mention of annuities in the United States was the use of these products by the Presbyterian Church in 1740 to provide security for the clergy and widows.
Typically, fixed annuities are an interest-bearing account issued by life insurance companies. An annuity can pay the contract holder an immediate or deferred periodic income, either for a specified time period or for the rest of their life. Interest earnings growth in the annuity is tax-deferred, as long as the interest remains in the policy. All the interest earnings accumulated in the annuity are taxed as ordinary income when distributed. Annuities are often used to augment retirement income by providing the annuity owner a guaranteed a lifetime income regardless of how long they live.
Annuities can be used in your IRA or other tax qualified plans. Income in a qualified plan is already accumulating tax-free. Fixed annuities can still provide the guaranteed returns.
Some basic types of Annuities include:
Fixed Single Premium Immediate Annuities
Fixed Single Premium Deferred Annuities
Fixed Flexible Premium Deferred Annuities
Fixed Single Premium and Flexible Premium Indexed Annuities
Fixed Single and Flexible Premium Charitable Gift Annuities
Fixed Single Premium Split Dollar and/or Flexible Combination Annuities
Variable Annuities
All annuities have three primary advantages: tax deferral, avoidance of probate, and a guaranteed income (optional) for a fixed period of time, or income for life. Non-qualified annuities also offer the power of triple compounding!
Interest on Principle + Interest on Interest + Interest on Tax Savings
Annuities are currently the only product available to consumers today which contractually guarantee the insured a lifetime minimum rate of return on money deposited, guaranteed lifetime income options, and tax deferral the during accumulation phase of the contract in non-qualified plans.
Bank CD’s, Bonds |
-vs- |
Annuities |
|
| Guaranteed lifetime income option | No |  |
Yes |
| Loan privileges | No | Yes | |
| Avoidance of probate costs and delays | No | Yes | |
| Potential Social Security tax advantage | No | Yes | |
| Nursing Home Benefit “Free Withdrawal” | No | Yes | |
| Tax-deferred Growth | No | Yes |
Never invest in any product you don't understand. Be sure you have enough information to make an informed decision before making any investment. Ask questions until you are completely satisfied. Investments always involve some degree of risk. Understand the risks before you invest. Be sure your investment and financial representative knows your financial objectives and risk tolerance.
The future is yours to control. Decisions you make about how you structure your income and manage your assets will have lasting affects on you and your family. Proper planning is the most important aspect of pre-retirement preparation. Having a flexible plan which includes guaranteed lifetime income strategies and on-going monitoring of your financial situation will give you the best chance to achieve you long-range goals.
John Rada & Associates offer you the opportunity to for a free review of your retirement income plans. If you do not have a plan we can help you build one. We can assist you in determining if an annuity would make sense for you. In addition, if an annuity does make sense for you, we can recommend an annuity or other strategies which are more suitable to meet your financial goals.
Our free independent analysis can help you sort through your options and choices and determine the most suitable course of action based on your individual family situation.