An Annuity is a tax-deferred savings contract issued and backed by an insurance company that has two distinct purposes:

• To allow you to use the power of tax-deferred earnings to accumulate retirement savings.
• Guarantee a steady flow of income upon retirement.

In addition, an annuity can be used to provide money in case of an emergency.

Tax-Deferral

All annuity earnings are tax-deferred until you receive income from the annuity. Putting the power of tax-deferral to work for you can significantly increase growth of your retirement savings. When you invest $25,000 in a certificate of deposit (CD) that pays 3.97% interest, your net yield after taxes drops to 2.38%, assuming a 40% tax bracket, and the value after 20 years would total only $40,032. Because annuity earnings are tax-deferred, a $25,000 deposit in an annuity paying 5.2% would be worth $68,906 ($28,874 more than CDs) after 20 years.

Safety

Annuities are an inherently safe way of saving for retirement. Your deposits are backed by an insurance company, which is subject to stringent reserve and investment requirements that are designed to protect both your annuity deposits and its earnings. Some states also secure annuity deposits with a guaranty fund.

Yield

Because Insurance companies can pool your annuity deposits with other investors funds to obtain higher yields, you are able to enjoy higher growth than you would in comparable safe, guaranteed investments available to individual investors.

Liquidity

Insurers recognize that there will be times when you will need your money unexpectedly. Unlike CDs, annuities allow for penalty-free early withdrawals of specified amounts. Also, unlike CDs, early withdrawal penalties in the annuity end after a specified time (usually seven to ten years). Under current tax law, distributions will be first treated as return of interest and taxed accordingly. If you are under 59 ½ years old, the distribution also may be subject to a 10 percent IRS penalty.

Probate-Free

Like an insurance policy, all annuity proceeds bypass probate and are paid directly to the named beneficiary in the event of an annuitant's death. Unlike money or assets that are distributed through a will, annuity funds are not subject to the publicity, delays or fees of the probate process. Because annuity proceeds bypass the probate process, the beneficiary is entitled to the annuity proceeds immediately upon the death of the annuitant.

Other Benefits

Annuities may also be used to accumulate money for other savings goals, such as your child's college education or the purchase of a new home. There are in fact several types of annuities available:

• Deferred or Immediate
• Variable or Fixed
• Qualified or Non-Qualified
• Single Premium or Flexible Premium

Our experienced, licensed team can assist you in selecting the right annuity based on your needs. In order to identify these needs, it is important to evaluate the following factors:

Are you in the saving or spending phase of your life?

If you have not yet retired, or are not yet in the spending phase of your life; then, a deferred annuity is the right choice for you. If you are now ready to put your retirement savings to work for you, you have two choices - an immediate annuity or a deferred annuity with systematic withdrawal. Both types of annuities can provide income when you need it.

What is your view of the financial markets and you risk tolerance level?

To determine whether a fixed or variable annuity is the best choice for you, it is important to consider your risk tolerance level and your view of financial markets. If you are interested in guaranteeing both the principal and the rate of interest, you should consider a fixed annuity. A fixed annuity most closely resembles a certificate of deposit. When you deposit a sum of money in a fixed annuity, you are guaranteed a rate of interest for a period of time and, generally, you are subject to penalties should you surrender your contract. Some fixed annuities let you select from several interest-crediting options. Rather than being backed by the FDIC/FSLIC, which protects your CDs and savings accounts, your annuity is protected by the strength of the insurer, the legal reserve system and any applicable state guaranty funds.

A variable annuity more closely resembles a mutual fund. You determine whether your deposits are invested in stock funds, bond funds and/or money market funds. In exchange for potentially higher returns, deposits in this type of annuity are subject to principal risk and asset valuation fluctuation. This means that if investment results are unfavorable you can lose part or all of your principal.

NOTE: This information should not be used as a basis for legal or tax advice.  In any specific case, the parties involved should seek the guidance and advise of their own legal and tax counsel.