Annuity Settlement Option:
Annuity settlement options can be puzzling. Many people have purchased annuities of all types for the tax deferral feature. And for numerous retirees it’s time to take withdrawals. What’s the best way?
One annuity settlement option is to annuitize -- to take payments over a time frame that you select. When you annuitize, you receive payments (e.g. monthly, annually) in exchange for surrendering your annuity to the annuity company. The choices of time frames usually include:
Life with a fixed minimum of years
Life with refund installments
Joint and Survivor
To determine which one would be best in your case, you need to be pretty good with a financial calculator or visit a financial advisor. The choice of payouts can be influenced by such variables as your health and spouse’s health, your age and spouse’s age, your other sources of income, and your tax bracket.
For more flexibility, you could opt for systematic withdrawals. In that case, you would receive a fixed percentage of the account value (remember that with a variable annuity your account value can fluctuate month to month) or a fixed monthly amount. You can stop that arrangement at any time and simply withdraw your remaining balance.
Although systematic withdrawals appear superior to annuitization, note two differences:
With annuitization as your annuity settlement option, you can lock in a guaranteed monthly income regardless of the performance of your annuity. In addition, annuitization lengthens the tax deferral period since only part of each payment is taxed (The IRS considers the other part a return of principal).
You may want to just keep the annuity growing and not take payments at all. Some annuities, however, won’t allow this and force withdrawals by a certain age. One option for you is a tax-free exchange to another annuity that may have more liberal withdrawal requirements (Surrender charges could be assessed when switching annuities). You probably never thought getting a check could be so complicated. To have your choices compared, we can review any type of annuity or annuity settlement option and figure the most appropriate withdrawal option for you.
Note: Annuity withdrawals prior to age 59½ are subject to a 10% penalty. Annuities may contain surrender charges which should be checked prior to making withdrawals. Guarantees are based on the claims-paying ability of the issuer.
PS: Of course, before you can offer any kind of
annuity settlement option,
you'll need clients with annuities. For this, you'll want to get started with our free annuity leads.