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Annuities
Annuities: Stay Single or Go Steady?
by Robert Hapanowicz (Write for us!)
(Click on the links within the article to get definition of that word)

Some people like to jump in with both feet. Others prefer to ease in slowly. Regardless of which way you like to go, there may be an annuity program that suits you.

Annuities continue to be a popular way to accumulate supplemental retirement funds. Americans have more than a trillion dollars in variable annuity assets, and they poured $65 billion into variable annuity premiums during the first half of 2005. 1

An annuity is an insurance-based product that offers the potential for fixed or variable returns. Some people fund annuities with a lump-sum contribution. Others make regular contributions over long periods. Which way is better for you?

All at Once
A lump sum often comes from a major life event, such as the sale of real property or an inheritance. So there may be only a few times during your lifetime when you will have the opportunity to contribute a lump sum to fund an annuity.

Little at a Time
A series of regular payments provides the opportunity to potentially accumulate a significant sum for retirement without putting too much pressure on monthly cash flow (see chart below). This option can be especially useful for individuals who wish to take advantage of tax deferral to help save for retirement but don't have access to a retirement plan.

Although an annuity is usually funded with after-tax money, it offers the opportunity for tax deferral going forward. Any earnings in the contract can accumulate without adding to your current tax burden. The taxable portion of annuity withdrawals is taxed as ordinary income and may be subject to surrender charges plus a 10 percent federal income tax penalty if made prior to age 59 1/2 . Surrender charges may also apply during the contract's early years.

Variable annuity subaccounts fluctuate with changes in market conditions. When surrendered, the annuity may be worth more or less than the original amount invested. Note that investments seeking higher rates of return also involve a higher degree of risk. The guarantees of fixed annuity contracts are contingent on the claims-paying ability of the issuing insurance company.

Variable annuities are sold only by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

Annuities are known for their flexibility. Understanding the many options may help you choose how to fund an annuity.

1 National Association for Variable Annuities, 2005

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