Annuity FYI considers the most competitive variable and fixed annuities to be some of the soundest retirement vehicles. Retirement variable annuities offer tax-deferred growth, and depending on how they are structured can guarantee principal and lifetime income to make sure that you do not outlive your money, and provide death benefit protection to support to your beneficiaries.
There is an additional benefit to retirement annuities that few people are aware of — a benefit that is extremely important in retirement planning: Social Security Offset.
What is Social Security Offset?
The government calculates your Social Security payment amount and decreases your Social Security benefit based on all reportable income. This is known as Social Security Offset. For example, any reportable income from mutual funds, corporate bonds, treasuries, CDs, and individual stocks will decrease your Social Security payments. Even the interest on “tax-free” municipal bonds, while tax-exempt, is factored into the calculation of taxing Social Security benefits. Income derived from these investments will reduce your Social Security payments, even if you are reinvesting the gains rather then spending them!
Avoiding Social Security Offset with Annuities
With an annuity, you can reduce or eliminate taxes on your Social Security income. According to Section 72 of the Internal Revenue Code, your annuity earnings can grow tax free during the deferral period. This means that you don’t have to pay taxes on your annuity unless you pull funds out for income — gains within the annuity will not offset your Social Security benefits.
Additionally, deferred fixed annuities typically earn higher interest rates than CDs, money markets, and savings accounts, and usually don’t carry management fees. Moving your savings into a deferred annuity will allow you to accumulate and compound tax-deferred earnings at a higher interest rate until you truly need the income.
Many investors who are approaching retirement maximize their Social Security benefits by moving retirement funds into annuities. For more information on this, see our section “401(k) Rollover — Is It Right For Me?” or Contact an licensed financial professional.