Simple money transfers to annuities: the payoff and rewards
By Paul Cross
Annuity National Brokerage Co.
The golden years of retirement now require more retirement income. Inflation, taxes, low interest rates and market losses are causing people to search out financial sources and resources to provide stability in their lives with more secure income.
Samuel Johnson in the 1700s said, “The first years of man must make provision for the last.” He also said, “It is better to live rich than die rich.”
The second quote almost sounds contrary to the first statement until we give it deeper thought. Guaranteed streams of income for life will enable us to live a richer lifestyle without fear of outliving our money and/or our resources.
People are transferring billions into annuities monthly
Why? For more income, more growth and less tax people are transferring billions into annuities. Financial universities and economists around the globe have concluded and documented that traditional income annuities can provide a stream of income for life for 40 percent less than a stock, bond and cash mix. The primary reason: Traditional annuities eliminate risk and losses in the market.
Income annuities can also provide joint income for life providing security for a surviving spouse with a stream of income guaranteed for life.
Here are some more favorable reasons people are transferring billions into annuities every single month. Annuities provide guaranteed, safe and secure growth — growth that is tax-deferred.
Said another way, the annuity develops an automatic re-investment cash flow of tax dollars that compound and grow income tax-deferred inside the annuity.
People are rolling over IRAs and 401(k)s into annuities by the billions
Why? To stop losing money on Wall Street and to shelter the growth of their retirement plan from the IRS with income guaranteed for life and continued growth on their money.
Here’s how. Annuities can provide the same income on 40 percent less. That means we can enjoy a stream of income from 60 percent of our IRA and 401(k) and have continued growth on 40 percent of our retirement plan for increases in retirement income.
People are transferring billions from bank CDs and money markets
Why? Bank CDs and money markets earn little taxable income that can bump you up into a higher marginal tax rate on the upper layer of income. For retirees, that little taxable income can trigger or increase taxation on Social Security income, but not the interest credited to annuities.
What are the payoffs and the rewards for simple money transfers into annuities?
Higher interest rates, premium bonuses and income security are some of the payoffs and rewards. Here are two major considerations that are often overlooked:
1. Without the necessity of a will or a trust, your remainder in annuities is payable directly to your named beneficiaries, outside the probate courts. That saves your family court costs and legal fees.
2. You can designate how you want the money paid out or distributed — in lump sum or income or a combination thereof — and the payout is administered by the annuity without cost and without the necessity of a trust and a trustee.
Your spouse as the primary beneficiary will become the new owner and she may continue the interest income throughout her life. Neither of you will have paid tax on the growth of the annuity that paid out streams of income.
Your spouse as the new owner can then name your children as her primary beneficiaries. She can designate each to receive a payout over their life expectancy, thereby avoiding a big tax balloon payment and converting tax dollars into streams of income.
The golden years of retirement is our time in the world to do the things we always wanted to do. Annuities can help people enjoy the financial freedom to do the things they always wanted to do.