Serra Benefits & Insurance Services is here for you now and well into retirement. We offer fixed annuity retirement plans to supplement your income. This is your SAFE MONEY. Fixed annuities do not run the risk of unexpectantly losing money in the stock market. Especially considering time is valuable and we have less time to financially recover from market instability.
What is an annuity?
An annuity is a long-term investment contract issued by an insurance company. In return for your investment, they provide a reliable, steady stream of income for the life of the contract. Annuities are a good idea if you are nearing retirement and are looking for a strategy to protect yourself from outliving your income or to supplement your income.
You can get a fixed annuity in which the payments are spelled out exactly ahead of time in the contract. Or you can get a variable annuity with the potential for higher – or lower – payments, depending on the performance of a traditional investment portfolio.
How does an annuity work?
Fixed Annuities work by providing periodic payments of steady income in the amount specified in the contract. If your contract says the payout rate is 5% on a $100,000 annuity, for example, then you will receive $5,000 worth of payments every year covered by the contract.
How much does a $100,000 annuity pay per month?
Let’s take a fixed, immediate annuity with a 5% payout rate as an example. That means, each year, you will receive payments totaling an amount equivalent to 5% of your investment.
| Fixed Annuity Purchase at 5% | Yearly Payment | Monthly Payment |
|---|---|---|
| $50,000 | $2,500 | $208.33 |
| $100,000 | $5,000 | $416.67 |
| $500,000 | $25,000 | $2,083.33 |
| $1,000,000 | $50,000 | $4,166.66 |
Is an annuity better than a 401K?
One is not necessarily better than the other. Many will fund a 401K while still working. Then get an annuity (1 or more) at or in retirement. They may also opt to roll their 401K into an annuity for a guaranteed steady stream of income. An annuity and 401K are both retirement accounts with some significant differences. Let’s look.
Availability
- 401(k) plans are available only to individuals whose employers offer them.
- Annuities are not employer-sponsored and can be purchased by anyone.
Contribution limits
- There are contribution limits for 401(k) accounts.
- There are no contribution limits for annuities.
As of 2022, the annual 401(k) contribution limit was $20,500.
Tax deferrals
- Both annuities and 401(k) accounts provide the ability to defer paying taxes on earnings until the money is withdrawn. However, contributions to 401(k) accounts may be deducted from your taxes in the years in which they are made. Contributions to annuities may not be tax deducted.
Taxes on withdrawals
- Because of that 401(k) deduction, withdrawals from those accounts are taxable in their entirety. Only the portions of annuity withdrawals that represent earnings are taxable.
What is the downside of an annuity?
An annuity is a long-term contract. Terms are often several years or more. Although accessible, there are also penalties for taking money out before age 59.5. Ideally, annuities are a good source of lump sum or lifetime income.
Are annuities safe?
Annuities are a safe investment. However, like any financial product, it is important to purchase from a highly rated, well-established insurance company with a good reputation. At Serra Benefits, we are appointed with all the major top-rated companies. We can consult, shop, and quote the most competitive retirement plans to fit your needs.