MAKE ANNUITIES PART OF YOUR RETIREMENT PLANNING
As the baby-boomer generation moves into retirement, the
65-and-over age group will grow from 12% at present to 20% of the
total population. The need for adequate retirement planning will
grow, too. Projecting your financial needs for a secure and
comfortable retirement involves making financial assumptions
concerning inflation, future rates of return, and your life
expectancy. The best financial retirement package will include a
mixture of Social Security, pensions, IRAs, annuities, and
investments.
Annuities can be part of your "package." They are purchased
through an insurance company, and are bought with a single
payment or with periodic payments. Your income usually begins
when you retire.
There are two kinds of annuities:
A fixed annuity is like a long-term, tax-sheltered CD
(Certificate of Deposit).
- Advantages: it pays a fixed rate of return agreed upon up
front and offers the tax-deferred compounding of your
investment income. Most are deferred annuities, in which you
pay now but don't start receiving income until you retire.
- Disadvantages: you are "loaning" your money to an insurance
company, and you could lose part, or all, of your investment
if the company fails. There are significant surrender charges
if you cash your annuity in early.
- Your investment is as strong as the company, so make sure
your insurer is in good financial health. Limit yourself to
insurers with only the highest financial ratings from two or
more rating services.
A variable annuity (VA) is like a long-term, tax-sheltered mutual
fund.
- Advantages: You control the investments. If you choose the
right investment mix and a good performing product, VAs can
be far more profitable than fixed annuities. You are insured
against losses, and the taxes are deferred.
- Disadvantages: You don't know what your annuity will
eventually be worth; risk/reward is a two-edged sword. The
layers of fees make them far more costly than simply buying
mutual funds. There may be tax complications down the road,
especially if you die and leave a sizable amount of money
still in your VA account. There are surrender charges if you
cash out early.
- There are a few no-load VAs that have low annual fees and no
surrender charges. You do not have to go through an insurance
agent or stockbroker. You can do it yourself and avoid the
front-end commissions.
Austin Pryor is publisher of Sound Mind Investing, a
monthly Bible-based investment newsletter that is one
of the top 25 in the country in circulation. He
writes a periodic column for Moody magazine and is a
regular guest of Larry Burkett's "Money Matters"
program and the Moody "Midday Connection" program.
From Sound Mind Investing by Austin Pryor, copyright
(c) 1996. Used by permission of Moody Press, Chicago,
Ill., 1-800-678-6928.
© 1997 vinebranch@hotmail.com
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