Annuities may help your income last a lifetime
With demographic trends pushing the length of retirement to 25 or 30 years and beyond, it's important to create a retirement investment strategy that is designed to generate an income stream that you won't outlive. If you're looking for an investment vehicle that promises a guaranteed, lifetime income stream, then you may want to consider annuities. Simply put, annuities could help ensure that you won't outlive your savings.
Annuities defined
Annuities are long-term contracts sold by an insurance company designed to provide payments to the holder at specified intervals, usually after retirement. There are two distinct phases to annuity investing: the "accumulation phase" occurs when you are contributing, while the "annuitization or distribution phase" occurs when you withdraw money.Footnote 1
While annuities may be attractive because they usually impose no contribution limits and are tax-deferred, meaning that the earnings from investments in these accounts have the opportunity to grow tax-deferred until withdrawal, they also have other appealing features as well, such as their numerous "payout" options in the distribution stage. For instance, during retirement you can receive your money from an annuity in a single lump sum or as a series of regular payments over your life or some other predetermined number of years. Some retired clients find it easier and less stressful to manage their household expenses through a regular income stream, just as they did while working.
But getting a regular income stream doesn't necessarily limit your options. Today's annuities offer the flexibility, access and control over your money that often wasn't available in the past. Product innovations have resulted in optional benefits that provide downside guarantees,Footnote 2 the opportunity to capture the market's upside, inflation protection and cost-of-living increase features, all of which may help investors plan for a long retirement.Footnote 3
Keep in mind that the annuity provider can charge you a fee for making withdrawals prior to maturity or some other specified date. The charges could be substantial, and they could significantly reduce your potential payout. As a result, an annuity investment should be considered a long-term commitment and not an emergency fund. Also remember that the strength of an annuity rests on the strength of the issuing company. You should research any potential annuity provider and understand how the company is rated.
In short, annuity payouts through a regular income stream may be an important part of your retirement portfolio. If you own an annuity now, you might want to consider using it to potentially generate income. For more detailed information about the role that annuities might play in your financial future, contact a qualified financial professional.
Footnote 1 Withdrawals from an annuity before age 59½ may incur a 10% additional tax. Please refer to your contract's prospectus for detailed information about how withdrawals can affect your annuity's death benefit and/or your living benefit.
Footnote 2 Any guarantees are based on the financial strength and the claims-paying ability of the issuing insurance company. All annuity contract and rider guarantees, including optional benefits and any fixed subaccount crediting rates or annuity payout rates, are backed by the claims-paying ability of the issuing insurance company. They are not backed by Merrill or its affiliates, nor do Merrill or its affiliates make any representations or guarantees regarding the claims-paying ability of issuing insurance company.
Footnote 3 Optional benefits are available for additional fees and can vary from product to product.
Variable annuities are long-term, tax-deferred investment vehicles designed for retirement purposes and contain both an investment and insurance component. They are sold only by prospectus. Guarantees are based on the claims-paying ability of the issuer and do not apply to a variable annuity's separate account or its underlying investments. The investment returns and principal value of the available subaccount portfolios will fluctuate so that the value of an investor's unit, when redeemed, may be worth more or less than their original value. Withdrawals made prior to age 59½ may be subject to a 10% additional federal tax. Surrender charges may apply. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal.
Not FDIC/NCUA Insured — May Lose Value — Not Bank/CU Guaranteed — Not a Deposit — Not Insured by Any Federal Agency
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The material was authored by a third party, DST Retirement Solutions, LLC, an SS&C company ("SS&C"), not affiliated with Merrill or any of its affiliates and is for information and educational purposes only. The opinions and views expressed do not necessarily reflect the opinions and views of Merrill or any of its affiliates. Any assumptions, opinions and estimates are as of the date of this material and are subject to change without notice. Past performance does not guarantee future results. The information contained in this material does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security, financial instrument, or strategy. Before acting on any recommendation in this material, you should consider whether it is in your best interest based on your particular circumstances and, if necessary, seek professional advice.
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