This penalty may decrease as you progress through your surrender period. After this point, you can withdraw all your money without owing a penalty to the annuity company. Because annuities offer certain tax advantages, you face the same kind of early withdrawal penalty that most retirement account holders do.
For example, as of August , fixed annuity interest rates range from about 1. Index annuities fall between fixed annuities and variable annuities. This lets you benefit from stock market gains, as well as lose money if markets decline, similar to a variable annuity.
But unlike variable annuities, index annuities always cap both your potential gains and losses. On average, a variable annuity charges 2. This percentage consists of several fees your annuity company deducts from your balance every year. Some of the costs involved with a variable annuity include:. Out of all annuity types, a variable annuity has the highest potential earning power, even if there could be swings along the way.
Like with any major financial decision, consider speaking with a financial advisor to determine if your retirement planning would benefit from an annuity.
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Craig Kirsner, MBA, is a nationally recognized author, speaker and retirement planner, whom you may have seen on Kiplinger, Fidelity. He is an Investment Adviser Representative who has passed the Series 63 and 65 securities exams and has been a licensed insurance agent for 25 years. The appearances in Kiplinger were obtained through a PR program.
The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger. Kiplinger was not compensated in any way. Skip to header Skip to main content Skip to footer. Home retirement annuities. This content is subject to copyright. Annuities: The 'Bad,' the 'Good' and the 'Misunderstood'. But wait until you read the rest of the story… Myth 5: Your income rider is an efficient way to receive income for life Let me explain how an income rider really works.
Myth 6: Your lifetime income will go up after you turn it on Your adviser might have told you that your income could go up after you turn it on. Myth 7: Your family will always get the death benefit Many people I come across have a death benefit rider, and they are under the impression their family will always receive the death benefit as a lump sum. This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. It all depends on the markets.
As long as your money is in mutual funds, you may want to consider investing directly in them. If you have yet to reach retirement, variable annuities, or all annuities for that matter, are virtually inaccessible.
This is because of the surrender charges that insurance companies institute in these contracts. For instance, a variable annuity might come with a 5-, 7- or year surrender charge period.
Fixed and variable annuities are about as opposite as you can get. While a variable annuity earns returns through investment performance, a fixed annuity grows via a specific interest rate that the insurance company presets.
The market can also dictate the quality of these fixed rates, though. In addition, while variable annuities charge a multitude of fees, fixed annuities often have no annual fees whatsoever.
On occasion, an insurance company might allow you to buy an extra rider, though. In the end, variable and fixed annuities are versions of the same thing, so they share many of the same benefits.
Tax-deferred growth is perhaps the most important among these similarities. In fact, they both allow your funds to grow without incurring income taxes. Beyond that, death benefits are available for both fixed and variable annuities during the accumulation phase of a contract. Variable annuities come with tax advantages, but they can be expensive. Ideally, you should max out your contributions to your k and IRA before putting money in an annuity of any kind.
For the most tax-deferred growth, you should put any savings outside of your k balance in the annuity. Of course, if your company offers an annuity in your k , you could do both.
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