The USAA Offers Annuity Basics

Annuities can be particularly helpful to Americans who are in or have been in the military.  For this reason, the USAA published a report detailing the basics of annuities, how they can be helpful, and who can benefit from their use.  On, the Paycheck Chronicles’ Kate Horrell wrote an article called “Annuities 101 from USAA.”  It’s hard to discount a product that provides lifetime income, but many people still do.  According to USAA, annuities help people prepare for and get adjusted to retirement.  While they are not for everyone, confusion about annuity products keeps many people away who could benefit from their lifetime income.  Using annuities to turn retirement savings into guaranteed income is useful to many members of our military.

The USAA simplifies annuities by describing them as mix and match.  First, you need to determine whether you want an immediate or a deferred annuity.  Someone who is retiring and needs an additional income source can buy an immediate annuity with 401k funds, an inheritance, proceeds from the sale of a home, or other savings.  A conservative investor looking to guarantee their retirement income for the future might buy a deferred annuity to grow their money free of taxes.  The longer your money is deferred, the better returns you can get.  Annuities can also be fixed, variable or indexed.  Fixed annuities offer a fixed rate of return and guarantee your principal will not be lost.  Variable annuities offer the potential for greater returns in mutual fund-like investments, but you could possibly lose money.  Indexed annuities also guarantee your principal, but link your returns to one of the stock market indexes.  The mix and match aspect comes in because you can choose an immediate fixed annuity, a deferred variable annuity, and so on.  Annuities are more complex than this basic explanation, but the point is that they have some inherent value.  Speak with an annuity expert to find out the details before discounting a product just because you think it’s not going to be right.

There are some great tax advantages with annuities.  Deferred annuities allow you to defer your taxes until you start receiving income payments.  There is no limit to how much money you can put into an annuity like there is with IRA funding.  Also, you don’t have to take minimum payments out starting at the specific age of 70 1/2 as you do with other investments.  Keep in mind that you will likely be penalized for taking money out before age 59 1/2, just like with an IRA.  Annuities also have surrender charge periods where it’s in your best interest to leave the money in there.  If you transfer to another annuity or turn your money into an income stream though, you usually are not penalized.

We talk about the reasons that annuities are so important a lot in this blog.  People are living longer and a longer life means that you will need income for a longer period of time than your grandparents did.  Private pensions are hard to come by nowadays.  It’s becoming your personal responsibility to fund your retirement, not your employer’s.  Something additional that this article points out is the fact that the Social Security minimum age has risen.  You now have to wait until you are 67 to start receiving your benefits if you were born after 1960.  If you wanted to retire before that age, an annuity is a good bridge for your income until you start receiving Social Security payments.  Delaying Social Security increases your benefits as well, so why not wait until age 70 and get the full benefits?  You can pay your expenses with an annuity until then.  Annuity FYI experts can help you determine if the benefits of annuities match your retirement planning goals.

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