subject: T.R.A.C.E. Your Annuity [print this page] The above acronym is a great way to help you remember the most important benefits of an Annuity. Provided as a memory device, TRACE will help you identify your five best reasons to consider purchasing an annuity.
T = Tax Deferred
No one wants to pay taxes. Unfortunately, taxes are a normal and uncomfortable part of life. The advantage of annuities is that you pay no taxes on your earnings until you begin receiving payments. Once payments begin, your taxes are assessed on the money you receive in payment. The rest of your annuity balance remains in your account to grow tax-free until you decide to take more money out of your account.
R = Reliability
Annuities are one of the most reliable investments available. Fixed annuities have guaranteed interest rates. Whatever happens in your financial life, you can trust that your fixed annuity will continue to grow at the same dependable interest rate. If you want to flex your financial muscle, equity-indexed annuities offer the stability of having your premium safe while investing for interest gains in the stock market. Your investment continues to grow at a minimum guaranteed rate but your chance at gains or losses depends entirely on how the stock market performs.
Life insurance companies issue annuities. State laws require insurance companies to carry substantial amounts of money in reserve to pay claims. Third party rating companies carefully monitor the performance of insurance companies and make their ratings available to the public. You have probably heard the name Standard & Poor's or A.M. Best. These names are synonymous in both the private and financial sectors with providing reliable and up-to-date information on insurance companies. You can use their publications to review the history of your favorite company.
A = Asset Planning
Annuities allow your beneficiaries to access money in your account quickly after your death. Assets that make their way through the probate system cause beneficiaries to wait months to settle your estate. Annuities are not bound by the hassles and delays of this arduous system. Taxes will not be due on the estate unless you designate your estate as beneficiary. Your heirs, as beneficiaries, will pay the taxes. Beneficiaries can be anyone or anything you choose--spouses, children, pets, trusts, or endowments to name just a few. Any benefit is then taxed according to the income tax rate of the beneficiary. The money comes to your heirs quickly and privately, thereby avoiding legal fees and public scrutiny. You can appoint secondary beneficiaries immediately should something happen to keep your first beneficiary from inheriting. This change can be made at any time.
C = Convertible to Cash
Cash is one of our favorite words. You can access cash from your annuity more easily than from other investments. Many annuities allow you to withdraw a portion of your balance without penalty. You can also begin receiving payments immediately without fear of penalties. Annuities offer living benefits that allow funds to be paid in the event you are transferred to a nursing home, lose your job, or receive a terminal illness diagnosis.
E = Earnings
Annuities demonstrate repeatedly their superiority over other forms of investment. They consistently earn a higher yield than CDs and other taxable savings plans. Historically, market based interest rates are competitive and outshine CDs by earning a 1-2% higher yield. Better earnings and tax-deferred savings stand out as two great reasons to choose an annuity over lower paying investment options. You will have a better retirement if you choose one.
This is just a small sampling of the many benefits of owning an annuity. Keep shopping until you answer all of your questions and find the annuity that is right for your retirement needs.
