Annuities
Annuities
Starlight Financial is here to help you navigate annuities.
Part of many people’s retirement strategy includes an annuity. An
annuity is a type of insurance that pays out an income. How much you are paid is determined by multiple factors, but at Starlight Financial, we can make it easier and help you determine a plan that works for you.
When you leave a job, the money in your 401K needs to be transferred so that you do not lose it. One of the best ways to keep it tax exempt is to move it to an IRA account or to your new 401K with your new employer. Whichever you choose, you will need to request a direct rollover, so the money is taken out of your old 401K and put directly into your new account. If it goes to you first, taxes can be taken out.
There are also different types of annuities you can buy. A
Single Premium Immediate Annuity, or SPIA, is an annuity in which you pay a one-time premium, albeit a large one, and you will receive regular payments for the rest of your life after a short period. One of the downsides to this type of annuity is that once you die, the money goes to the insurance company, rather than back to your family. A deferred annuity
holds payments until the investor chooses to receive them. This type of annuity can be either variable or fixed, and it has one phase where you save and invest, and the second phase is where the money is converted into an annuity and pays out regularly. There is also a death benefit offered with deferred annuities, so the beneficiaries get back at least the principal investment and any gains.
Annuities can be fixed, indexed, or variable. Fixed annuities will pay out the same amount each payment, and the interest rate is fixed. Indexed annuities allow investors to earn more money based on higher stock market yields, while also protecting them against declines. However, there tend to be caps on indexed annuities, so yields may be lower overall. Variable annuities allow the investor to invest in several types of accounts, and the payouts depend on what those accounts yield.
Annuities also have different phases. The accumulation phase is the part where you pay into the annuity and decide how you want to invest. During this phase, you may not have access to your money, and if you do, there may be tax penalties for removing it. The next phase is the annuitization phase. This is when the insurance company begins to make payments to you, and your investment is converted to annuity units. Some types of annuities do not have an annuitization phase. The last phase is the payout phase. During this time, payments are made based on how many annuity units you own. The length of this phase is dependent upon several factors.
Income riders give you some flexibility to change your plan if you desire. These are benefits attached to a policy that guarantee a growth rate during the accumulation phase. Once the payout period starts, income riders no longer offer a guaranteed growth rate. Income riders are taxable at normal income tax rates, which may not make them the best choice for all investors.
With all these factors, it can be difficult to choose the right annuity for your situation. Starlight Financial can help with that. Immediate annuities are often best for those about to retire, because this group do not have to worry about the length of time investing can take. Deferred annuities are usually best for young individuals, because they have time to invest, and typically, they can change their plans or remove their money if they choose to later. Some things you will need to decide before buying an annuity is how soon you will need the money and what you intend to use the annuity for. At Starlight Financial, our professional advisors can help walk you through all the parts of an annuity and help you decide which is best for you. We have locations in Lexington, Florence, the Louisville/New Albany area, and Pikeville, KY, Kingsport, TN, Linton, IN, Fredericksburg, VA, and Phoenix, AZ. We proudly serve the surrounding areas, and we will soon have a location in southern Illinois, as well.
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