Who might want to consider an annuity? The answer may surprise you!

While it's often assumed that only those seeking retirement income should consider annuities, we believe that this is a misguided stereotype. We don't blindly accept any stereotype without further consideration. For example, advisors may say that younger people should not use annuities for after-tax money because of the 10% penalty charged when withdrawing deferred interest from an after-tax annuity. While that may seem like a logical reason not to buy annuities, there are situations where annuities can be beneficial for younger individuals. For instance, if a younger couple has a portion of their assets left to them by their parents for the benefit of their children, they may not have any interest in withdrawing any interest in the near future. In this case, a tax penalty can be avoided by simply not taking withdrawals until the penalty no longer applies. Therefore, there's no reason not to consider accumulation annuities for this subset of a younger couple's money, especially considering no tax is charged against growth during the couple's high earning years.

Another common misconception is that annuities are only suitable for qualified money like IRA-type monies. However, this is not the case. It doesn't matter what you have your IRA invested in; you'll still pay a penalty for early withdrawal to the IRS and regular income tax, which is not higher or lower in tax-deferred annuities. So, logically, there's no reason why younger people, depending upon their financial situation, wouldn't consider accumulation annuities for protection of principal and growth on their qualified monies as well.

One of the biggest reasons we believe younger people do not more aggressively use these products is misinformation about negative tax consequences and the lack of general knowledge about the higher level of performance at high propensity in accumulation annuities. Additionally, we're constantly barraged with information suggesting that the stock market is "where it's at," despite the fact that there have been five major economic surprises/downturns during the last few decades that have eviscerated monies in markets, causing several years of downtime waiting for values to return.

Comparing that against something that does not lose principal when market indices fall but has no limit on the percentage of the gain of the market credit when markets gain, it's clear that annuities are a fair fight at best and in the worst of scenarios, annuities would likely do extremely better. In the best of scenarios, annuities may not do quite as well, which suggests that a balance of products be used to provide both the best of upside potential while reducing the potential of being wiped out by an unexpected negative market sequence.

Annuities can be a good option for long-term savings, retirement, or inheritance purposes, especially for tax-qualified funds like 401(k) or IRA. Annuities provide tax-deferred growth, which means that you don't pay taxes on your earnings until you withdraw the money. However, premature withdrawal from non-qualified funds may result in a 10% penalty. Depending on the interest rate, the client's tax rate, and how long the money is left to defer, annuities can provide higher returns than CDs even after paying the penalty and taxes. Cap Averill purchased deferred annuities for his grandchildren when they were young, and those same annuities were not activated for school because the kids wound up getting scholarships and paying their way through. So, the money continued in deferral in their names. It's amazing to see how quickly money grows when we are not charged any income tax on the earnings, but instead we are only charged income tax on the money we decide to withdraw. That is one of the benefits we get from tax-deferred annuities.

Age Breakdown

Are you dreaming of retiring early, but worried about being hit with penalties for withdrawing from your 401(k) before age 59 1/2? Don't let that stop you! While most people might tell you it's not possible, many agents are not familiar with the 72T concept that can help you retire early. If you're 55 and fully retired, there's a way to structure your income using an annuity that's not subject to the 10% penalty. This annuity pays out partially as a return of principal and partially as interest, at a tax-preferred rate. This means you can retire without paying income tax penalties on your IRAs, 401(k)s, or other tax-qualified money.

While this option may not be well-known or recommended by some, it's worth exploring if you're considering early retirement. So go ahead, retire on your terms and enjoy the freedom you've worked so hard to achieve! For those aged 591/2 or above, any withdrawals made from qualified annuities or after-tax annuities will not incur a 10% penalty. Instead, you will only pay regular income tax on the interest you've earned during your lifetime, and only on the amount you withdraw. This means that with some planning, we can spread the tax burden over multiple tax years and reduce our overall tax liability. If we are under 75 years of age, we may be in the best position to purchase fixed, indexed, and other annuities. It is important to note that insurance companies limit the maximum age of their available products due to the uncertainty of how many additional years an individual may live. As such, if we are 75 years of age or less, we will likely have a wider range of product options to choose from.

For those between 75 and 80 years of age, we will likely have a shorter list of products available to us, and the longer surrender charge periods may be less available or not available at all. However, there are still several ten-year annuity products with high accumulation attributes, and a number of five and seven-year annuity products that may be appropriate for our specific financial situation to choose from.

For those older than 80 but not yet 85, extreme caution must be taken in purchasing annuities since not all products are designed for significant growth, and some may come with additional charges. It is best to seek the advice of our other financial professionals, including our CPA, tax advisors, and other fiduciaries to ensure that we fully understand the costs and terms of the product we are considering and how the product relates to our specific financial situation.

Finally, for those above 90 years of age, it may be extremely challenging to find viable accumulation annuities given the uncertainty of lifespan at that age.

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*Please note we do not provide tax advice; you should consult your accountants and tax professionals for tax advice.

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