Understanding Annuity: A Comprehensive Guide. 

Choosing the best Annuity for your financial Goal, Fixed Annuity VS. Index Annuity.

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Annuity

What is an Annuity? Your essential questions answered.

An annuity is a financial product sold by insurance companies that helps you:

  • Save for retirement (tax-deferred).
  • Or turn your retirement savings into guaranteed retirement income over time, normally 10 years, 20 years, or lifetime.

It’s especially useful if you want steady income stream after retiring and to reduce the risk of outliving your savings.

Benefits of Annuity:

  • Guaranteed income options.
  • Zero downside market risk.
  • Tax-deferred growth (you don’t pay taxes until you withdraw).
  • Flexible payout choices (you can choose how and when you get paid).

9 Advantages of having an Annuity:

  1. No Fees: Fixed and indexed annuities typically have no annual fees.
  2. Penalty-Free Access: Withdraw up to 10% annually without penalties.
  3. Wealth Transfer Benefits: Bypass probate and streamline asset distribution to beneficiaries.
  4. Principal Protection: Your principal is 100% protected, no direct exposure to market losses.
  5. Tax-Deferred Growth: Interest grows tax-deferred with the power of compounding accumulation.
  6. Potential for Higher Returns: Earn more interest than traditional bank savings accounts or CDs.
  7. Lifetime Income Options: Guaranteed income for life, including joint and survivorship benefits for spouses.
  8. State-Backed Security: Accounts are guaranteed by the State of Florida insurance guaranty association, typically up to $250,000 per owner, per insurance company.
  9. Diversified Index Choices: Access to a mix of indices like the S&P 500, Nasdaq 100, Russell 2000, Dow Jones, and bond indices—with annual reset to lock in gains.

Types of Annuity Products we Offer:

(A) Fixed (Tax-Deferred Annuity):

  • Income is guaranteed.
  • A contract with an insurance company.
  • Earnings are tax-deferred until withdrawn.
  • You get a guaranteed interest rate for 2,3,5,7,10 years.
  • Your money is invested in interest-bearing obligations, so the return is:
    • More stable.
    • But typically lower than stock market-linked investments.

Tax-Deferred Annuity Advantages – Savings Growth:

  • Tax deferral means you don’t pay taxes on your earnings right away.
  • Over time, this can lead to larger long-term savings compared to taxable options like CDs.
  • Since you’re not paying taxes yearly, your money grows faster—compounding Interest more efficiently.

Annuity Related to Taxes:

  • You only pay taxes when you withdraw interest—not every year.
  • You can control the timing of your withdrawals to manage your tax bracket.
  • If you turn it into monthly income later (like during retirement), the tax hit is spread out over the years—potentially keeping you in a lower tax bracket.

Early Withdrawal Rules:

  • Like CDs, annuities often have a penalty for early surrender.
  • But most contracts offer a free withdrawal allowance (e.g., 10% per year without penalty), offering some liquidity.

(B) Equity Indexed Annuity:  “Best of Both Worlds”

  • You get a guaranteed minimum return, so your principal deposit is protected.
  • Potential for higher gains than fixed annuities (but usually lower than pure market investments).
  • Returns are linked to market indexes (like the S&P 500,Dow Jones Index Acct., S&P Mid Cap 400, NASDAQ, and the Russell 2000)—not individual stocks or mutual funds.

3 Types of Rider available to add to Annuity Plan:

  1. Lifetime Income Rider – living benefit Contract.
  2. Death Benefit Rider – Guarantee Heirs the balance of Original Deposit.
  3. Long Term Care Rider – Pays for long term care in nursing home or other medical facilities.

2 types of Annuity Premium Deposit:

  • Qualified: Money from Tax deferred accounts such as IRA, 401K, 403B
  • Non-Qualified: Money you already paid taxes on.

Understanding Annuity Limitations:

  1. Account Is Locked for the Contract Year – Once you purchase an annuity, your funds are typically locked in for the duration of the contract period, limiting flexibility.
  2. Lack of Liquidity – Annuities are not easily accessible like regular investment accounts. You may not be able to withdraw large sums without facing penalties or surrender charges.
  3. Limited Free Withdrawals (Usually 10% Annually) – Most annuity contracts allow only a limited annual withdrawal amount (commonly 10%) without penalty. Exceeding this may result in extra charges.
  4. Tax Penalty for Early Withdrawal – If you withdraw funds before age 59½, you may face a 10% IRS penalty on top of regular income tax, similar to early withdrawals from retirement accounts.

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To get a personalized Annuity illustration that suits your financial goals, feel free to call us at (954) 454-9599 — We are here to help you structure an Annuity plan that fits your financial needs!

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