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Annuities: The Missing Piece in Your Retirement Puzzle

BECU Investment Services

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When it comes to planning for retirement, you may feel as though you've already explored all your options. From traditional and Roth IRAs to 401(k) plans, pensions and even health savings accounts (HSAs), there are many retirement funding options available. 

One key — and often overlooked — part of the retirement puzzle is the annuity. These financial products are uniquely versatile and have tax benefits that often aren't available with other retirement options.

What Is an Annuity?

An annuity is an insurance product that relies on market growth to make defined future payments. But unlike pensions, which generally provide benefits based on your years of service and annual salary, annuities are endlessly customizable.

For example, if you know you'd like to receive $1,000 per month in retirement and have $250,000 to invest at a 1% growth rate, you can purchase an annuity that will make these payments for just over 23 years.1 That same $250,000 could provide you with $3,000 a month for 7 years. (This is a hypothetical example and is not representative of any specific situation. Your results will vary.)

Because annuities are insurance products, they build value over time — even before you begin receiving annuity benefits.

How Can Annuities Fit Into a Retirement Plan?

There are several ways annuities can help smooth your retirement path. First, you can use them to accompany an IRA or 401(k) plan. These plans allow you to invest money in the market and then make regular withdrawals when you reach full retirement age. However, an annuity has no age limit, so diverting some of your investment funds to an annuity can allow you to receive income earlier (and thereby retire earlier).

You can also use an annuity as a tax shield for your assets. Receiving a lump sum — whether from the sale of a home, business, or other asset, an inheritance, or another source — can carry tax consequences. But putting funds into an annuity that provides a much smaller annual income (for a longer period) can address that these funds are taxed only at your marginal rate.

The tax rules surrounding annuities can be complicated, so it's always a good idea to consult with a financial professional before diving in. They can work with you to structure your annuities in a way that might help you keep more cash in your pocket.

Talk to a Financial Advisor

Financial advisors at BECU Investment Services are here to help. Our team will take the time to get to know you, understand your goals and implement a retirement strategy that's appropriate for you. Set up a complimentary consultation or call 206-439-5720 today.

1“Annuity calculator,” Bankrate,

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Annuities are long-term investment vehicles designed for retirement purposes. Guarantees are based on the claims-paying ability of the issuing insurance company. Withdrawals prior to 59½ may result in an IRS penalty, and surrender charges may apply.

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