Let’s Get Annuitized!

Posted on by George Murphy

No, not because all the cool kids on the playground are doing it, or because it sounds hip. Annuitization doesn’t require a degree or even a parent’s permission! An annuity is an investment insurance product that entitles the investor to a lump sum payment or stream of payments at a later date with the invested funds returned untaxed.

How Do Annuities Work?

1. Contribute money into annuity (aka principal)

2. Money gains interest

3. Choose when to receive money back in payments (aka annuitization)

What’s The Difference?

Unlike other investment tools, annuities are unique for several reasons. There is no annual contribution limit like there is with an IRA, and contributions can be made all at once or in payments over time. Lastly, the principal is returned untaxed with only the interest gained taxed as normal income.

When Can I Start Getting Paid? 

Return 1: Immediate Annuity*

-Anytime chosen within 12 months of purchase

-Choose number of years for payments or to last lifetime

Return 2: Deferred Annuity

-Contributions accumulate interest for chosen period of time

-Payouts begin upon annuitization; paid over time or complete withdraw (aka surrender)

Do I Have Interest Options?

Yes! There are two main types of rates. One is a fixed rate where your insurance company agrees to make periodic payments with a guaranteed amount of interest on the principal upon annuitization. A fixed rate is considered the safer investment as it is a guaranteed amount of interest and not based on the volatility of the market.

There other is a variable rate where your insurance company agrees to pay a minimum amount upon annuitization. The remaining portion of the annuity payouts are based on the gains/losses incurred through investments in your annuity-paired portfolio. Your portfolio gains go untaxed until annuitization and offer the opportunity to earn more than an investor would solely on interest.


*Choosing an immediate return rate means receiving payments anytime within 12 months of purchasing the annuity while still gaining interest on the remaining balance, so there is still a monetary benefit.

Happy Investing!


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