Retirement Annuities: Sailing Smoothly Through Retirement
A retirement based annuity program is a source of security for you in terms of income that you receive for the rest of your life after retirement. The income could also be withdrawn before retirement, under the period selected by you. Retirement annuity can be fixed or variable. Fixed retirement annuity offers fixed structured income payments, based on the amount you decide to deposit and the interest rate at the time you made the purchase.
According to current tax law, a portion of the income you receive from this annuity is tax-free, until the whole premium is recovered. After that, incomes are taxable. Here are some interesting facts pertaining to retirement annuities: 1. A single premium retirement annuity is suitable for a number of income needs and is quite flexible. 2. The retirement annuity cannot only be used as a source of income at the time of retirement but also as a source of income at the time of death to a specified child. It can be used to fund specialized education to disabled child. It can also be used to consolidate assets and use them as income streams. 3. With retirement annuities, you opt to make a one time payment and the distribution of the income begins within 30 days. These distributions can be delayed for an year also. There are a number of retirement annuities in the market that are advantageous in some way or another. 4. Single Premium Immediate Annuities (SPIA) is a sort of immediate annuity that can be purchased from a single deposit. However, this immediate policy helps the buyer to receive monthly income immediately after the deposit. This way, the buyer loses the right of receiving the deposit as a lump sum. 5. An immediate policy can be purchased with funds from sources like CD (certificate of deposit). The advantages of buying an immediate annuity are in terms of security, simplicity, high returns, preferred tax treatment, safety of principal and no sales or administrative charges. SPIAs are most suitable as income avenues in the following situations: 1. Retirement from the job 2. Pension termination 3. Buyouts after retirement 4. Professional sports contracts 5. Credit enhancement 6. Loan guarantee transactions. SPIA is a type of immediate annuity which can further be enhanced in to a number of immediate annuities like Life with Period Certain annuity, Joint and Survivor annuity etc. There are two sources of funds relating to an immediate annuity: Qualified and Non Qualified. Qualified source of funders refer to the tax status of the source of the funds used for the purchase of the annuity. The whole payment received here is taxable as income whereas in non qualified source, a part of the monthly payment is considered as return of previous taxed principal and thus it does not involve any sort of tax. Planning for monthly incomes after retirement is a smart way to secure the retirement phase. Remember, think wisely, invest carefully. |
