By Stewart Scothorn | 2024 | Retirement
National Annuity Awareness Month, established by the National Association for Fixed Annuities. This month serves as a pivotal time to educate people about the significant role annuities can play in retirement income strategies.
National Annuity Awareness Month, established by the National Association for Fixed Annuities. This month serves as a pivotal time to educate people about the significant role annuities can play in retirement income strategies.
The Importance of Annuities in Retirement Planning
Retirement marks a major transition in life with life expectancy increasing, retirees face uncertainties like the duration of their lives and whether they will have sufficient income to maintain their lifestyles. This is where annuities can be invaluable, shifting the focus from asset accumulation to ensuring a steady income.
Maximizing Social Security Benefits
One key strategy to prevent outliving your income is delaying Social Security benefits as long as possible, ideally until age 70. For example, if Howard, born in 1961, waits until 70, his estimated monthly benefit of $2,000 at full retirement age would increase by 24% to $2,480. However, to bridge the income gap until then, Howard might consider purchasing an annuity.
An annuity can provide inflation-adjusted payments for a set period, allowing Howard’s Social Security benefits to grow untouched until he turns 70. This approach can also help minimize required minimum distributions and reduce potential taxes on Social Security benefits and Medicare premiums.
Taxation and Strategic Planning
Annuities offer favorable tax treatment. For example, if Ken and Linda, both 65, purchase a non-qualified annuity with a $500,000 premium, only a portion of their $2,000 monthly payments will be taxable based on an exclusion ratio. This tax efficiency extends to immediate and deferred annuities, offering retirees control over their taxable income.
Annuities as an Income Bridge
Annuities can also serve as an income bridge before age 59 ½, avoiding the 10% additional tax on early withdrawals. The IRS’s Notice 2022-6 has enhanced this strategy by allowing higher SEPP (substantially equal periodic payments) calculations, making it a viable option for early retirees.
As National Annuity Awareness Month highlights, annuities can be a powerful tool in retirement planning. Whether used to maximize Social Security benefits, provide a steady income, or manage taxes efficiently, annuities offer diverse options to suit various retirement needs. Consulting with a financial advisor can help tailor these strategies to individual circumstances, ensuring a secure and comfortable retirement.
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For more information on how to secure these essential policies, contact The Annuity Link today. It’s never too early to start planning for a secure future.
Sources:1 https://nationaldaycalendar.com/june-monthly-observations/ 2 https://www.ssa.gov/pubs/EN-05-10147.pdf 3 https://www.ssa.gov/pubs/EN-05-10035.pdf 4 https://www.medicare.gov/your-medicare-costs/part-b-costs 5 https://www.irs.gov/pub/irs-pdf/p590b.pdf Roth IRAs: What are Qualified Distributions? 2022 Returns 6 https://www.annuity.org/annuities/taxation/exclusion-ratio/# 7 https://www.immediateannuities.com/taxation-of-annuities/# 8 https://www.irs.gov/pub/irs-drop/n-22-06.pdf 9 https://www.irs.gov/businesses/small-businesses-self-employed/section-7520-interest-rates
