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Annuities are Like Tortoises, Slow and Steady

Annuities are such a great way to guarantee income safely.  While they certainly aren’t the fastest growing investments, AAA Arizona financial advisor Mark Boskovich points out that they are slow and steady.  He should know because he hasn’t had a client lose money since he started working for AAA nearly two years ago.  He appreciates that annuities are nearly risk-free and says that the slow growth is worth the guaranteed lifetime income.  His annuity information is in an Arizona Daily Star article,  “AAA: Annuities risk-free but slow-growing option.”  Another AAA team member, Valerie Vinyard, wrote the article and calls Boskovich a tortoise for his slow and steady pace.

When you enter into an annuity contract with an insurance company, your payouts are based on their claims paying abilities because they are not covered by FDIC insurance.  But make sure you check with your individual state, because most have coverage on annuities up to a certain amount.  Mr. Boskovich only works with annuity companies whose financial ratings are ‘A’ or higher, so check with Fitch or A.M. Best before buying your annuity.  One great benefit of annuities is their tax-deferral ability.  You will not get taxed on your money until you start receiving payments.  During the first phase of your annuity contract, accumulation, your money grows tax-deferred.  Then, during the payout phase, you will likely be taxed at your ordinary income rate.

Annuities are very similar to other retirement accounts in that you should not start taking your money out until at least age 59 1/2.  You could face a 10% penalty if you take your payments too soon and there is no reason to lose money like that.  Another great benefit of annuities is that there is no yearly contribution limit, unlike some other savings vehicles.  You can save more and take advantage of more tax benefits.  Keep in mind that annuities have fees and the more riders you add onto them, the more fees you will be charged.  Things like long term care benefits or income benefits cost more, so make sure you are aware of those costs up front.  Mr. Boskovich strongly believes that fixed and indexed annuities are a great way to guarantee income in retirement because of their low risk and slow and steady growth.

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