Annuities

Annuities are financial vehicles sold through insurance companies that can pay a regular stream of income when you retire. They provide a structured way to plan for retirement and offer tax-deferred advantages on the interest you earn. Annuities can also provide immediate payout of funds, giving you a vehicle for pension funds, Traditional IRAs, SEP plans, etc.

Deferred Annuity
The return on deferred annuity contributions is tax-deferred until the annuity payout begins, usually at retirement.

Generally, with a deferred annuity, you start with as little as $50, and make contributions on a monthly or annual basis. The more you contribute, the more your annuity grows. You can also set up a deferred annuity with a single payment. Your single contribution continues to grow until the specified payout time.

If you should die before receiving annuity payouts, your named beneficiary receives the total of your contributions plus earnings in the annuity.

Immediate Annuity
This is a single payment annuity often purchased by people who are ready to retire. It is a way to ensure an income stream from the proceeds of a pension plan, Traditional IRA or other retirement vehicle. The level of monthly income depends on the amount of time the annuity payouts are to be continued -- 10 years, 20 years or for the rest of your life.

Tax-Sheltered Annuity
Employees eligible to establish a Tax-Sheltered Annuity are those employees of:

Public schools, state colleges and universities
State departments of education
Qualifying non-profit, tax-exempt hospitals and medical schools
Parochial schools
Religious organizations
Private colleges and universities
Foundations and charitable institutions

(The above is not intended as a comprehensive listing of eligible employees.)

Contributions to a Tax-Sheltered Annuity are not included in the employee's gross income, and are therefore not subject to federal income tax withholding. They are, however, subject to Social Security tax.

Payout Options
You can schedule your payouts on a monthly, annual or other basis. You can also choose the length of time you will receive payouts.
Fixed Term Certain Payout -- you receive a payout for a specified number of years after you retire.
Life payout -- you receive a payout guaranteed for your life.
Fixed Term/Life Payout -- You receive payout for life. Should you die before the annuity pays benefits for the specified term, your beneficiary receives the same payout for the remainder of the term.
Joint Survivor Payout -- You and your spouse receive payout until one of you dies. The survivor then receives a reduced payout for life. The reduced payout is generally 50% to 100% of the original payout.

Comparing an Annuity with a CD
Mortality studies show people are living longer and will need to increase savings to supplement Social Security. Annuities offer the advantage of being tax-deferred until distributed. Distribution usually occurs when the annuitant is retired and in a lower tax bracket. Interest on a CD is taxable every year interest is earned.

Annuities

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