Annuities are an insurance product designed to protect your principal while providing some opportunity for growth. Fixed annuities are designed to have less downside risk than investing directly in the stock market. They can be an important tool in your retirement tool belt.
A fixed indexed annuity product is created to invest money for a certain period of time disclosed on the illustration and contract. Generally, if you remove money before the time period is passed you can be subject to surrender charges. The inability to access your money concerns some people and prevents them from investing in an annuity. But many people do not know that annuities typically offer a few caveats to this arrangement.
First, most annuities do allow for an annual 10% penalty free withdrawal (The IRS will penalize you if you take it out before age 59 ½ except for death and a couple other provisions). Secondly, some annuities will allow you full access to your principal in the event of a terminal illness. And finally, some annuities also allow you access to a portion of your principal for long term care. It is important to discuss your financial situation, goals and needs with a financial professional as there are additional income riders and benefits available that can be added at the time you purchase the annuity product.
We hope that a well-designed retirement plan should leave enough money in your emergency fund that you wouldn’t need to take money out of an annuity. When your annuity has reached its maturity date and you are ready to access your funds, there are a couple of different options for doing so.
You can access your funds through a lump sum payment. If you take it in a lump sum, you will pay tax on the gain. Another option if you don’t actually need the income is to transfer the money into another annuity income tax-free.
If you receive the lump sum payment, then you will likely need a plan of how to invest it or budget it to make the money last the duration of your retirement if you intend to use it as income.
Another option is to take an annuitized payout. “Annuitization” means taking the lump sum and turning it into a payout that will last either the duration of your life or for the time period you selected based on your annuity company’s options. If you have an annuity and are looking at how and when to access your funds, we recommend you meet with a licensed insurance agent and CERTIFIED FINANCIAL PLANNER ™ to review your situation, needs and goals and decide the path forward.
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Investment advisory products and services made available through AE Wealth Management, LLC (AEWM), a Registered Investment Advisor. Insurance products are offered through the insurance business Bradshaw & Weil, Inc. Insurance & Financial Planning. Bradshaw & Weil Wealth Management, LLC DBA Bradshaw & Weil Insurance & Financial Planning is an Investment Advisory practice that offers products and services through AE Wealth Management, LLC (AEWM), a Registered Investment Advisor. AEWM does not offer insurance products. The insurance products offered by Bradshaw & Weil, Inc. Insurance & Financial Planning are not subject to Investment Advisor requirements. AEWM and Bradshaw & Weil, Inc. Insurance & Financial Planning are not affiliated companies.
Guarantees and protections provided by insurance products, including annuities, are backed by the financial strength and claims-paying ability of the issuing insurance carrier. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions.
Investing involves risk, including the potential loss of principal. Any references to safety, security generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. 1550539 – 11/22
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