Sunday, September 11, 2011
Fixed Immediate Annuities
It's possible to increase your monthly cash flow with a fixed immediate annuity. An immediate annuity is simple the payment of a premium to an insurance company. In exchange, the company converts your premium to a monthly cash payment for life or term of years. (Monthly payments are based on the claims-paying ability of the insurer, so picking a financially solid insurance company is important.) As each payment consists of principal and interest, each annuity payment is partially excluded from taxation as described by IRS Publication 590. Premium taxes could apply in some states.
Here's a hypothetical example. A 70-year old gentleman paid $250,000 in premium to an insurance company for a fixed, immediate annuity. In return, the insurance company makes annuity payments of $2,000 per month. Of this payment $1,300 will be considered a return on investment and only $700 will be subject to federal income taxes. Assuming this taxpayer is in a 25% federal income tax bracket, the income tax for each payment would come to $175 per month. Any payments received after the taxpayer exceeds his life expectancy are complete subject to federal income taxes. That's $24,000 each year of checks in the mail. Please note that these annuities cannot be surrendered for value and payments will usually cease at the insured's death. Please note that your actual results will vary based in part upon your age and premium paid.
For whom may a fixed annuity income be suitable?
- A retiree needing increased monthly cash flow
- A person with no heirs or who is not concerned about leaving an estate
- Someone who has set aside other funds to leave to heirs if they desire to leave an inheritance
- A retiree desiring the fixed payment and wanting to avoid maturities, rolling over investments and the maintenance and administration often required of investing on one's own.
For more information contact us at Annuity Liberty.