Did you know that “over 61% of Americans think they won’t have enough money to live comfortably in retirement and that 80% of Americans expect to have to work part-time in their retirement” * just to cover basic expenses? Given this scenario, retirement doesn’t look like the ideal image of spending the day with the grandchildren or leisurely vacationing in Hawaii that we all envision as the “dream retirement”. In fact it sounds rather depressing that we may never fully reap the harvest of our hard work if we fail to plan for our financial futures.

Likewise, while some recognize the need for retirement planning, they often mistakenly exclude annuities as a viable option simply because of limited exposure to the various annuity options and features. This article will educate you on how annuities work and where they can assist you in fulfilling your retirement planning objectives.

What is an Annuity?
Annuities are insurance products allowing individuals, or annuitants, to contribute premiums guaranteeing income payments over a specified period of time. There is a saying that “you can’t outlive an annuity” which holds true as annuity income payments are typically guaranteed for the rest of the annuitant’s life.

Annuities can be either qualified or non-qualified. Qualified annuities are typically used for tax-deferred retirement savings vehicles such as IRAs, 403bs, etc. Non-qualified annuities are funded with after-tax funds and in most cases income payments can be considered tax-free income.

Annuities can also be categorized as immediate or deferred according to when annuitization, or annuity income payout, occurs. Immediate annuities are designed for individuals who begin annuity income payments immediately (or shortly after) opening the policy. These annuities are also known as Single Premium Immediate Annuities or SPIAs. Deferred annuities in contrast, allow individuals to contribute premiums over an extended period of time and elect to withdraw income from the annuity at a later date.

Why Should You Consider Annuities?
• Lifetime income
• Protection against outliving your assets
• Qualified annuities can grow tax-deferred
• Ideal for individuals seeking a specified income amount during retirement years
• Can be distribution method for individuals receiving unexpected lump-sum income (e.g., inheritance, lottery earnings, personal injury settlements, etc.)

What Annuity Categories are Available?
Annuities can have several variations but they are typically categorized by product type, namely fixed, equity indexed and variable annuities.

Annuity Category Description
Fixed Annuity Insurance companies guarantee to credit annuity policy with a fixed interest rate (usually calculated annually). Fixed annuities are generally considered the most conservative annuity type.
Equity Indexed Annuity Equity-indexed annuities credit interest based on the movement of an equity index like the S&P 500, for example. EIAs differ from variable annuities (described below) in that they are not directly invested in the stock market. EIAs may also have an interest rate cap.
Variable Annuity Annuity funds are invested directly in the stock market, usually via mutual funds according to the annuitant’s risk tolerance. The annuity account value can fluctuate up and down based on how the market performs. Typically variable annuities have higher returns than other annuity types, but also carry the increased risk for potentially negative returns.

Are you confident that upon retirement you will have enough income to not only cover basic living expenses, but also for the pleasures of life? If not, call one of our qualified Optimum representatives at 718-623-3433 to evaluate if annuities should be a part of your retirement planning. II Corinthians 9:6 says “Whoever sows sparingly will also reap sparingly, and whoever sows generously will also reap generously.” Let Optimum assist you in sowing financial seeds today for a bountiful harvest during your retirement years.

NOTE: Neither Optimum Capital Management nor its Financial Advisors provide individual tax preparation or legal advice. Clients should review any planned financial transactions that may have tax implications with their own tax and legal advisors in addition to the consulting provided by Optimum of such matters.

*Roper ASW, 2003 and AARP Study, 2003