• Ways to Take Income from an Annuity

  • Financial Mistake: Not understanding the true liquidity and income features that fixed indexed annuities can provide

    Ways to Take Income from an Annuity

    With a fixed annuity, your money is not subject to market risk, so accessing cash could not create a situation where you might have to sell an asset at a loss due to the market being down. In the early years of an annuity contract, surrender penalties could occur if you access more money than is allowed by the penalty-free provisions of the contract. However, most of our clients who own fixed annuities have never paid a dime of surrender penalties. This is largely because most fixed annuities offer multiple liquidity provisions to access money without a penalty.

    An annuity is designed to provide an income, if needed. Most contracts offer either 2 or 3 ways to take income.

    1. Traditional Annuitization: This is a conversion of assets in your tax deferred annuity into a check payable for a
        period of time or for the duration of your life. Payments are calculated based upon life expectancy and an internal
        fixed interest rate (historically low at this time). Annuitization is typically an irrevocable decision. We feel that
        alternative options offering lifetime income with greater flexibility are usually more desirable than
        traditional annuitization.
    2. Penalty-Free Withdrawals*: After the first year, most fixed indexed annuities offer a withdrawal provision of 
        up to 10% of your money annually without a company penalty. Using penalty-free withdrawals as an income 
        source does not guarantee payment for the duration of your life, but it can be a strategy designed to
        preserve a portion or all of your principal. If the interest you earn is great enough and you do not withdraw
        everything in your lifetime, there will be a residual death benefit for your beneficiaries. Free withdrawals can be
        taken as needed or systematically (either monthly or annually). If you desire a consistent income, one strategy
        would be to withdraw a certain percentage of your original amount annually.
    3. Guaranteed Lifetime Withdrawals: Some fixed indexed annuities can provide a guaranteed lifetime withdrawal
        benefit for you, your spouse, or both (this is usually an optional benefit). A guaranteed withdrawal benefit on a
        fixed indexed annuity allows you to continue to take withdrawals from an annuity even if the cash value of
        the annuity eventually falls to zero. Annuities with this feature usually have a value often referred to as an
        Income Account Value (this terminology will vary from company to company). The income account value is
        not cash value growth but simply an accounting value used to calculate life-time income withdrawal amounts.
        Some contracts offer guaranteed growth of your income account value until you turn start taking your
        withdrawals guaranteed for life (see Guaranteed Growth & Lifetime Withdrawal Basics). 

    Click below to find out how a fixed indexed annuity can provide you in-come for your specific situation! 

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    Or call us at 901-754-2040

    * We are not stock brokers or financial advisors and do not give investment advice. We are not tax advisors and do not give tax advice. Note that distributions from traditional IRAs prior to age 59 &1/2 are taxed as ordinary income and may be subject to a 10% IRS federal tax penalty. Note that interest distributed from non-IRA annuities and Roth IRAs are subject to ordinary income tax and may be subject to a 10% IRS federal tax penalty.

    See our Professional Disclaimer