is an annuity and why do I want one?
annuity is like a bank savings account or
CD, except that it is offered by an insurance
company. In addition, an annuity can be used to provide
tax-favored income for various periods of time.
is it different than a CD or Money-Market Account?
Interest earned on a CD or Money Market Account is taxable in the year it is earned, regardless
of whether you take it or not. Interest on an annuity is tax-deferred until it is withdrawn.
I be concerned about paying taxes on my interest income?
course you should. Taxes on your interest reduces
your yield. For example, if you have a 4.00% certificate
of deposit, and your tax bracket is 33%, your actual
net yield is only 2.68%. Your annuity
will compound at the assumed rate without taxes.
I have to pay taxes on the interest when I take it
out, so what's the big difference?
if you took all the accumulated value at once, your
gain would be greater than if you
had paid current taxes on an annual basis. The reason
for this is that the entire interest balance
is free to compound tax-deferred, not just
the after-tax portion, as in a CD or other type of
after-tax savings account. Also, you can choose to
pay the taxes in a year that your other income may
have declined, or you can spread the taxes due over
a number of years.
the bank is FDIC insured. How safe is my annuity account?
VERY, very safe. Life insurance companies are generally bigger than banks, to begin with.
They're licensed and regulated by all the states they do business in, and backed by the legal reserve system.
Not a single customer of any life-insurance company has ever lost a dime due to insolvency in the history of
our country, and that includes the Great Depression. Personally, I don't write anything unless
the carrier is rated A (Excellent) or better, by A.M. Best Company.
YOUR NEXT CD IS UP FOR RENEWAL, CALL ME FOR A COMPARISON
TO A TAX-DEFERRED ANNUITY.