Annuities

Annuities are probably the premier investment vehicle for the elderly. With a variety of styles, plans, payout schedules, and protection; the annuity can give seniors just what they are looking for. An annuity technically is an insurance contract that offers a death benefit to beneficiaries when the insured dies, but it is also an excellent way to preserve wealth already accumulated. Many annuities offer a step-up provision that if the value of the annuity goes up, a snap shot is taken of the account value (usually every year) and recorded. If the account value goes below that level and the insured dies, the beneficiaries still receive the top level of that previous snap shot.

There are also many way the retiree can take distributions without penalties and sometimes without tax consequences. Many plans offer distributions up to 10% of the value each year without surrender charges. You may also be able to take a fixed amount for life with any remainder of assets still going to your beneficiaries. As far as taxes are concerned, you only pay when distributions are made to you and are taxed on the capital gains of the account. If you select conservative investments of mutual funds, stocks, and bonds, the gains are usually low. Again, this vehicle is more about preservation of wealth than about growth.

Because of the many options available, an annuity is also one of the most expensive investment vehicles based on a variety of fees. There are management fees (called 12b-1 fees), surrender charges (that usually decline each year), and other miscellaneous fees connected to maintaining the accounts within the annuity. Be sure to check the annuity prospectus for all the details.

May integrity and uprightness protect me,
because my hope is in you. Psalms 25:21

Next week, alternative investment vehicles will be covered. Stay tuned ...