Creating a reliable retirement income stream can be difficult given the many factors that can influence your strategy, such as market volatility, inflation, tax rates, and how long you will live. In order to help mitigate some of the risks, many people include annuities in their investment plans. An annuity can help protect your retirement lifestyle by providing guaranteed income that can last as long as you need it.1 You may choose to receive periodic payments for a certain number of years, or for the rest of your life (or the life of your spouse or any other person you designate).
How Do Annuities Work?
An annuity is a contract between you and an insurance company, under which the insurer agrees to make periodic payments to you, beginning either immediately or at some future date. You purchase an annuity contract by making either a single purchase payment or a series of purchase payments.
In purchasing an annuity, many individuals supply funds to the issuing insurance company, creating a pool of assets from which the insurance company can draw to make income payments. As lifetimes vary, the assets contributed by those with shorter lifetimes can be used to sustain income payments for those who live longer than anticipated.
While annuities may be purchased within retirement account, many investors don't see the need to pay for a benefit (tax-deferral) that they may already be receiving. After-tax annuities can provide investors with an opportunity to supplement their retirement savings on a tax-deferred basis. This benefit can be particularly attractive because there are no limits on contributions as there are with IRAs and employer-sponsored retirement plans.
Some annuities include a death benefit that guarantees your beneficiary will receive a certain amount (typically at least the amount of your purchase payments) in the event you pass away before the insurer has started making payments to you.1 If you die, your beneficiary will receive the greater of: all the money in your account, or some guaranteed minimum (such as all purchase payments minus prior withdrawals).
Types of Annuities
Annuities can be further classified as either fixed or variable:
1Payments of guaranteed income in regards to living and death benefits offered by annuity contracts are subject to the claims-paying ability of the issuing insurance company.
If you are investing in a variable annuity through a tax-advantaged retirement plan (such as a §401(k), §403(b) or IRA), you will get no additional tax advantage from the variable annuity. Under these circumstances, consider buying a variable annuity only if it makes sense because of the annuity's other features, such as lifetime income payments and death benefit protection.
Early withdrawals prior to age 59½ may be subject to surrender charges and a 10% tax penalty.
Lincoln Investment and its affiliates do not provide tax information or advice.
Before investing in a variable annuity, consider its investment objectives, risks, charges and expenses carefully. The prospectus contains this and other information. Prospectuses for both the variable annuity contract and the underlying funds can be obtained by contacting Lincoln Investment. Please read the prospectus carefully before you invest or send money.
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