Plan to retire? Know in your heart of hearts that Social Security, your IRA, and your company 401(k) aren’t going to keep you in the lap of luxury? Have you considered building retirement security with fixed annuities from New York Life Insurance and Annuity Corporation, a wholly owned subsidiary of New York Life Insurance Company?
Think of retirement security as a sturdy, three-legged stool:
Leg One is government funds, such as Social Security. This should be seen as a base only, since the average Social Security retirement benefit is just $1,079 per month. Nonetheless, among elderly Social Security beneficiaries, 52% of married couples and 72% of unmarried persons receive 50% or more of their income from Social Security. 1
Leg Two is employer-sponsored plans, such as 401(k) plans through work. However, once again, benefit amounts can be surprisingly low. The median annual private pension payment for retirees age 65 and older comes to just $9,000, or $750 a month. 2
Leg Three is your private savings, which includes IRAs and private annuities. The problem with IRAs is that there are limitations on how much you can contribute. Plus, many people haven’t done much in terms of IRA savings.
The Amazing Fixed Annuity
That’s why millions of men and women are turning to fixed annuities to help meet their retirement goals. What’s so amazing about fixed annuities? Annuities are among the most dynamic retirement planning tools for a number of reasons:
- Tax-deferred accumulation. Earnings are neither reportable to the IRS nor subject to taxes as income as long as they remain in the annuity. You pay taxes when withdrawals are made or when income is received as benefits.
- No capital gains taxes on growth. Unlike with stocks, which you may want to sell to avoid short-term losses in a turbulent economy to reposition your holdings, annuities are not subject to capital gains taxation.
- No legal contribution restrictions. With qualified retirement plans, the IRS limits “contributions.” There are no such restrictions with individual non-qualified annuities: You can deposit as much as you want...whenever you want, up to a company's limits. If you are approaching retirement, yet haven't taken the financial steps necessary to prepare for it, you can make large deposits into an annuity, making it possible to recover lost ground.
Deferred Annuity Features
- Access to cash. A tax-deferred accumulation annuity can be liquidated at any time. However, withdrawals may be subject to regular income tax and if made prior to age 59 1/2 may be subject to a 10 % federal penalty tax. Plus, since this is a long-term vehicle, most insurers usually assess a surrender charge if the contract is terminated during the first five to ten years. However, it is generally possible to withdraw a portion of your annuity's value under a number of circumstances. This includes the right to take up to 10 % of the principal and all earnings each year without incurring a surrender charge. (Income and penalty taxes may still apply.) After several years from the last deposit, surrender charges usually are eliminated.
- Distribution options. The annuity offers a wide range of standard settlement options that provides guaranteed lifetime income that you can never outlive. Or you can continue to let the funds accumulate, taking interest only.
- Annuities can help protect Social Security benefits. Under current law, the interest earned on annuities prior to distribution (due to its tax-deferred status) is not considered in the "earnings test" used to determine whether Social Security benefits are taxable.
- No year-end taxable dividends to report to the IRS. Some financial products generally declare dividend distributions in December, and they are often subject to taxation. This is not the case with annuities.
Lifetime Income Annuity Features
- Option for life-long income that is not affected by market fluctuations. However, with a lifetime income annuity, you CANNOT outlive your annuity benefits...no matter how long you live. This is the only financial vehicle available that can make that claim. The guarantee is backed by claims paying ability of the issuer.
- Payments can begin at any time. You don't have to wait until an official retirement age. Under a lifetime income option, an annuity lets you begin taking distributions at any age without penalty if you elect a life income annuity option.
- This has always been one of the primary reasons for purchasing annuities. Today, because life spans continue to increase, this feature has become more important than ever before. Whether you live to be 75, 105, or older, the life income option means that your income stream will continue for as long as you live.
Features of Both Annuities
- No “Required Minimum Distributions” for annuities that are not used to fund qualified plans. Your IRA (except for Roths) and other qualified plans must begin mandatory (and generally taxable) distributions at age 70 ½. There is no requirement to take distributions from nonqualified annuities. You can even pass these assets on to your heirs, though there may be tax consequences for them.
- Annuities can sidestep probate problems. At your death, remaining annuity values are paid to your beneficiaries without probate.
Suggestion: Find out if fixed annuities are right for you. New York Life offers a wealth of innovative annuities that include inflation features and distribution options that will help with your retirement and estate-planning needs. Talk to your New York Life agent about the choices available to you.
1. Social Security Basic Facts,” Social Security Administration, March 28, 2008.
2. “Retirement Annuity and Employment-Based Pension Income, Amoung Inviduals Age 50 and Over: 2006,” EBRI, January, 2008. (www.ebri.org)
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