Try Adding an Annuity to Your Retirement Portfolio
Provided by Robert Stolz, Northwestern Mutual Financial Network
How long do you expect to live? These days, we hear more and more about unprecedented gains in longevity. In fact, IRS tables show that a 65-year old today can expect, on average, to live to age 86. Many will live much longer than that.
The prospect of living a longer life is positive news – assuming you have the retirement income you need to afford the lifestyle you want. The problem is few Americans today may be able to count on pension plans and Social Security to support them fully in retirement; most will have to come up with another way to help ensure financial security.
Of course, Individual Retirement Accounts and employer-sponsored plans such as 401(k)s are typically the first-line of “attack” when it comes to investing for retirement. But what if you’ve maxed out your contributions or you don’t qualify for one of these plans?
In that case, an annuity may be a welcome addition to your retirement portfolio. It can help bridge the “gap” between your existing retirement plans and your Social Security benefits … and the retirement you hope to enjoy. That’s because an annuity provides both the tax-deferred compounding offered by other retirement savings vehicles plus other unique advantages.
Maximum opportunity to build your savings
Almost anyone can invest in an annuity – there are no income tests or other criteria to purchase a non qualified contract. There are also no annual IRS contribution limits, as with IRAs and employer-sponsored plans. This means you can contribute as much or as little as you like in any given year within the issuing company’s guidelines What’s more, your contributions can come from any source, not just earned income (as is required with an IRA or qualified retirement plan); you can use other savings, assets from the sale of a business, a lump-sum inheritance, or other resources to fund your annuity contract.
With an annuity, you’re not required to start taking distributions from your account at age 70 ½ (the required minimum distribution age for IRAs and 401(k) plans).
The ability to postpone payments until you need the income means your contributions have more time to grow tax-deferred for your retirement.
As with other retirement savings vehicles, if you take a withdrawal from an annuity prior to age 59 ½, your distribution may be subject to contractual withdrawal charges, income taxes, or a 10 percent IRS early withdrawal penalty.
Benefits you can plan on
Many annuities provide guarantees that can give you a sense of certainty, especially in today’s uncertain markets. Fixed, deferred annuities offer a fixed rate of interest. It’s important to remember that all guarantees in annuities are backed solely by the claims-paying ability of the issuer.
Some variable annuities include a fixed interest option, which ensures that your money will earn a minimum interest rate for a specified period of time. And most annuities also offer a death benefit that guarantees your beneficiaries will receive a guaranteed amount should you die before a certain age, and before your annuity payments begin.
Payout options to meet your specific needs
When it comes time to take income from your annuity, most contracts provide a range of income plan options.
You can elect to take your distribution as a lump sum or as an income stream. One income plan, however, is unique to annuities: and that’s the ability to convert your contract into an income stream that you can’t outlive.
Under the right circumstances, an annuity can be an attractive investment for those seeking a source of retirement income. To learn more, consult a financial services professional or tax consultant to see whether an annuity would benefit your overall retirement program.
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Article prepared by Northwestern Mutual with the cooperation of Robert Stolz. Robert Stolz is a Financial Representative with Northwestern Mutual Financial Network, the marketing name for the sales and distribution arm of The Northwestern Mutual Life Insurance Company (NM), Milwaukee, Wisconsin, its affiliates and subsidiaries. Robert Stolz is an agent of NM based in Beavercreek, Ohio. (937) 427-7185.
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