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in annuities

Tax-deferred and immediate annuities have been around for many years and are extremely flexible products.     Tax-deferred annuities are very popular for the tax deferral and the compound growth.   They function similiar to an IRA as they provide the same compounding factor.   There are many variations of these types of annuities, including fixed deferred annuities, indexed deferred annuities, and variable deferred annuties.   Each annuity has a death benefit that will pass along to a beneficiary of your choice and should avoid probate.   Deferred annuities will also have a surrender charge and the length will vary per product.   For example, it could be 3 years or 10 years and typically it is a decreasing surrender amount.    The surrender charge is similar to a back end sales charge on mutual funds.   This is an important factor when looking at an annuity, to make sure it doesn’t lock you up longer than you can afford.  When you reach 59 and a half you can use up to 10% of the annuity with no penalty.   A fixed annuity has a set interest rate that is locked in for a period of time.  It is like a CD, but with tax deferral.   An indexed annuity is an annuity that its gains are determined by some type of index like the S&P.   You have a maximum gain on the upside, but you can’t typically get credited less than 0 percent.   A variable annuity, is based in the market and has funds within the annuity that you choose from.  It provides more upside, but has market risk and is subject to its volatility.

Immediate annuities are exactly what they sound like.   An annuitant deposits money with an insurance company and the company pays them an immediate stream of money.   The payments can come in monthly, quarterly, or on an annual basis.   The payments can last for various lengths, depending on the annuitants needs.  It can be for a period certain, like 10 years, or it can be for lifetime.   An immediate annuity also has the option to provide a survivor benefit for your spouse.  If you choose this option it guarantees payments will continue to your spouse if you were to pass away before payments were completed.  This option can be appealing, but the payment to the annuitant will be reduced somewhat for adding this option.

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