Your Money:Supplement retirement savings with variable annuities
By Juergen Selk
Supplement retirement savings
with variable annuities
When it comes to saving for your retirement, it makes sense to maximize the use of traditional vehicles like an IRA or 401(k). However, most investors need to save more for retirement than these vehicles allow. Variable annuities can be an excellent long-term planning vehicle for retirement.
The tax-deferred benefits of annuities remain unchanged. Remember, annuities continue to grow tax-deferred during their accumulation phasewhich means that your investment will compound, year after year, free from taxes. Contrast this to taxable dividends and bond interest payments, which remain fully taxable ordinary income each year. Clearly, annuities retain their tax advantages.
While tax deferral remains an important attribute of variable annuities, other features are equally important to a long-term investing strategy, including:
Guaranteed Death Benefit: No other investment provides this measure of protection for an investors heirs. Regardless of market volatility, only a variable annuity can guarantee that heirs will never get back less than what was originally invested. This guarantee is backed by the claims-paying ability of the issuing insurance company.
Annuitization: With people living longer, the importance of this feature cannot be overstated. While annuities allow for money to grow efficiently during the accumulation phase, they also provide an income you cannot outlive. Fixed and variable payout options are available.
Unlimited Amounts for Tax Deferral: Unlike an IRA or a 401(k), annuities do not limit the amount you can invest for tax deferral, so once you have maximized contributions to these other vehicles, annuities provide tax-efficient investing for the rest of your retirement dollars.
Tax-free Transfers: Annuities allow you to switch between portfolios and/or money management families on a tax-free basis. In addition, portfolios can be automatically rebalanced to maintain initial asset allocation, without current income taxation.
Withdrawals of earnings are subject to income tax and prior to age 59 1/2 may be subject to an IRS penalty. Variable annuities are sold by prospectus, which includes more complete information regarding expenses and charges.
Juergen Selk is a financial consultant at Salomon Smith Barney in Rockford. Salomon Smith Barney does not offer tax or legal advice. If you have an investment or finance-related question, send it to The Rock River Times or to Juergen.Selk@rssmb.com!