Wouldn’t it be great to have a regular paycheck during retirement? An annuity is an investment tool that can provide you with this kind of regular income. Here’s what you need to know:

Annuities work much like an insurance policy – you pay in your specified premiums and the annuity will guarantee you a specified amount later on.

With an insurance policy of course, you must first suffer some sort of loss, but with an annuity, the only trigger is your retirement. You pay money into your annuity now – be it a lump sum or through monthly payments – and then upon retirement, you receive a regular payment from the insurance company or other financial institution that holds your annuity.

You can opt to receive payments on an annual, quarterly or even monthly basis and you can also structure the annuity to continue paying your spouse after you’ve passed away. In addition, if you die before you’ve collected the specified amount from your annuity, you can structure it so that it pays a lump sum to your beneficiaries, once again taking on the qualities of a life insurance policy.

Annuities can either be fixed return or variable return and this distinction will affect how much money you receive. A fixed return ensures that you receive a set amount each month, regardless of how your investments perform in the marketplace. A variable return on the other hand, will adjust your amount according to the growth or decline of your investment. That means that if your investment goes up, so does your monthly payment, but it can also go down as well if the market takes a turn for the worse.

Of course, your retirement plan should include other investing tools such as a 401k or IRA. To learn more about planning for retirement and coordinating your retirement with your estate plan, contact our office today.

The Bonfrisco Law Firm is a member of the American Academy of Estate Planning Attorneys.

There are some similarities between annuities and CDs; both types of investments are considered secure, and both offer guaranteed returns that are based on interest rates. Annuities are offered through insurance companies, while CDs are available from banks.

If you are thinking of planning for retirement and are interested in safe investments, you can’t go wrong with CDs or annuities, though you should weigh the benefits of each before deciding which investment best suites your needs.

Rate of Return

Although on the surface CDs appear to offers many of the same advantages of annuities, the truth is that annuities do offer some major advantages, such as tax deferrals and higher returns. It is true that CDs offer you protection against bank failure because they are federally insured, but the insurance companies that offer annuities are also mandated to have safety measures in place to protect investors.

Even though both annuities and CDs are both based on interest rates, with CDs your returns will be low when the interest rates are low. On the other hand annuities have a minimum guaranteed rate of return. What this means is you will never get less of a return than the guaranteed minimum, even if interest rates are low.

Taxes On Your Return

When you invest in CDs you will not have the ability to withdraw any of your returns until the investment period is over, but you will still have to pay taxes on the money your CDs are earning. With annuities you also have to wait a specific amount of time before you can withdraw money, but the earnings on annuities are tax deferred so you will not pay any taxes until you withdraw money.

Another advantage to the annuity is that you can often withdraw about 10% on an annual basis, or you can even invest in annuities that allow monthly withdraws. Taking money from a CD isn’t an option.

If you are looking for safe investments both CDs and annuities are a sure thing, but it is clear that annuities can offer the same risk fee investments, along with several additional benefits.

The Bonfrisco Law Firm is a member of the American Academy of Estate Planning Attorneys.